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As filed with the Securities and Exchange Commission on November 18, 1999
Registration No. 333-87819
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
the Securities Act of 1933
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FOGDOG, INC.
(Exact name of registrant as specified in its charter)
Delaware 7375 77-0388602
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
500 Broadway
Redwood City, CA 94063
(650) 980-2500
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
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Timothy P. Harrington
Chief Executive Officer
Fogdog, Inc.
500 Broadway
Redwood City, CA 94063
(650) 980-2500
(Address, including zip code, and telephone number, including area code, of
agent for service)
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Copies to:
Warren T. Lazarow, Esq. Stanton D. Wong, Esq.
David A. Makarechian, Esq. David R. Lamarre, Esq.
Elizabeth H. Lefever, Esq. Colin M. Morris, Esq.
Derrick N.D. Hansen, Esq. Paul C. McCoy, Esq.
Hooman Shahlavi, Esq. Pillsbury Madison & Sutro LLP
Brian E. Covotta, Esq. P.O. Box 7880
Brobeck, Phleger & Harrison LLP San Francisco, California 94120
Two Embarcadero Place (415) 983-1000
2200 Geng Road
Palo Alto, California 94303
(650) 424-0160
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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The inside front cover of the prospectus includes:
FOGDOG HOME
[PICTURE OF FOGDOG SPORTS HOMEPAGE]
The following text is placed to the left of the picture of the Fogdog Sports
homepage and lines connect the text to specific items on the picture of the
Fogdog Sports homepage:
1. Highlight Top Shops (seasonal)
The 6 top graphics are designed to highlight the more popular areas for
consumers. These slots are able to change based on seasonality and other
important factors.
2. Personalization
Registered users are greeted by name and directed to an area that highlights
items and promotions specific to their interests.
3. Shop by Sport or Department
Departments are horizontal categorization of products such as footwear,
apparel, etc.
4. Promotional Area
Highlights the most important areas and products on the site. This area is very
dynamic and typically changes on a weekly basis.
5. Concept Shops
In-depth, brand-specific shops for key brands such as Callaway Golf.
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TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 4
The Offering............................................................. 6
Summary Financial Information............................................ 7
Risk Factors............................................................. 8
Cautionary Note on Forward-Looking Statements............................ 23
Use of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 26
Selected Financial Data.................................................. 27
Selected Pro Forma Financial Data........................................ 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
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Page
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Business................................................................... 41
Management................................................................. 54
Transactions and Relationships with Related Parties........................ 68
Principal Stockholders..................................................... 71
Description of Capital Stock............................................... 73
Shares Available for Future Sale........................................... 76
Underwriting............................................................... 78
Notice to Canadian Residents............................................... 80
Legal Matters.............................................................. 81
Experts.................................................................... 81
Additional Information..................................................... 81
Index to Financial Statements.............................................. F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is
legal to sell these securities. The information in this prospectus is accurate
only on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and notes to those statements appearing
elsewhere in this prospectus.
Fogdog Sports
We are a leading online retailer of sporting goods. We have designed
fogdog.com, our online store, to offer extensive product selection, detailed
product information and a personalized shopping experience. We believe that we
offer the largest selection of sporting goods online, with up to 60,000
distinct stock keeping units representing more than 500 brands in all major
sports categories. Fogdog.com features a collection of specialty shops,
including soccer, baseball, golf, outdoors, fan/memorabilia and other popular
categories, organized to appeal to a broad base of customers from the avid
enthusiast to the occasional participant. We provide information and analysis
authored by experts, helpful shopping services and innovative merchandising.
According to Media Metrix, Inc., our web site received more visits during
September 1999 than any other online sporting goods retailer focusing
exclusively on sporting goods.
We believe that the sporting goods industry is large and growing and that
sporting goods are increasingly being purchased online. According to the Sports
Business Research Network, total U.S. retail sales of sporting goods were
approximately $77 billion in 1998 and have grown at a 6.8% compound annual rate
since 1994. Forrester Research projects that U.S. consumers will purchase $4.2
billion of sporting goods online in 2004. We believe that the sporting goods
industry will continue to benefit from the growth in participation and interest
in sports, recreation, health, fitness and outdoor activities. We believe the
sporting goods industry is fragmented and fails to satisfy fully the needs of
consumers and manufacturers.
Our online store is designed to address the limitations of the traditional
sporting goods retail channel for consumers and manufacturers. Most of our
products, representing 30 different sports, are featured in fourteen specialty
shops and five brand concept shops. In addition to offering a wide selection of
products, our web site provides a superior online shopping experience by
emphasizing the following:
. Specialty Shops Featuring Extensive Product Selection. We offer a broad
range of product lines in a wide variety of sports in order to make
fogdog.com a "one-stop-shop." Our specialty shops also feature useful,
compelling information and expert advice to help customers make the
right product selection to meet their sports performance objectives.
. Value-Added Shopping Services. We offer helpful services to assist our
customers with their purchasing decisions, including:
- Detailed product information, guides, configurators and comparison
charts;
- Brand concept shops;
- Advice and product recommendations by recognized sports experts;
- Consumer reviews; and
- Personalized shopping.
. Convenient Shopping Experience. Our online store provides customers with
an easy-to-use web site that is available 24 hours a day, seven days a
week.
. Commitment to Excellent Customer Service. We emphasize customer service
during all phases of the customer's online shopping experience and hire
sports consultants with a broad knowledge of athletics, sports products
and training to assist customers in their purchasing decisions.
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. Network of Fulfillment Partners. We have developed and implemented a
fulfillment system that utilizes third-party warehouses, distributors
and direct shipping from select manufacturers to support secure and
reliable online retailing.
The Fogdog Sports vision is to reinvent the sporting goods retail industry
by providing customers with a new value proposition of selection, information
and service. Our goal is to be the world's leading sporting goods retailer. We
intend to achieve this goal by:
. Building Brand Recognition. We intend to establish the Fogdog brand as
the first global brand for retail sporting goods and in the process
build consumer trust, confidence and loyalty.
. Promoting Repeat Purchases. We are focused on promoting customer
loyalty and building relationships with our customers to drive repeat
sales.
. Expanding Specialty Shops. We intend to add five to ten specialty shops
organized by sport or brand within the next 12 months.
. Maximizing Product Selection and Fulfillment Capabilities. We intend to
expand our fulfillment network, extend our brand relationships and
augment our technology and expertise so that we can sell and deliver
the broadest possible array of top branded products to our customers.
. Enhancing and Forming Strategic Relationships. We have entered into
agreements with manufacturers, such as Nike USA, Internet shopping
portals, such as America Online, and distribution partners, such as
Keystone Fulfillment, that we believe provide us with competitive
advantages in merchandising, marketing and distributing our products.
We intend to pursue similar arrangements which may include written
agreements, partnerships or other arrangements to further develop our
business.
. Expanding Internationally. We intend to replicate our business model
and build our brand name in selected international markets with
appropriate demographics and market characteristics.
Corporate Information
Fogdog, Inc. was incorporated in October 1994 in California as Cedro Group,
Inc. In November 1998, we changed our name to Fogdog, Inc. We plan to
reincorporate in Delaware prior to the commencement of this offering.
References in this prospectus to Fogdog Sports refer to Fogdog, Inc., a
Delaware corporation, its subsidiaries and its California predecessor, and not
to the underwriters. Our principal executive offices are located at 500
Broadway, Redwood City, California 94063 and our telephone number is (650) 980-
2500. Our web site can be found at www.fogdog.com. Information contained in our
web site is not intended to be a prospectus and does not constitute a part of
this prospectus.
Our trademarks and service marks include Fogdog(TM), Fogdog(TM) with the
accompanying design, the Fogdog logo, "Fogdog Sports(TM)," "The Dog Knows
Sports(TM)," "The Dog Knows(TM)" "Your Anytime, Anywhere Sports Store(TM)",
"360 Info Spin(TM)," "The Ultimate Sports Store(TM)" and "Fogdog Fetch(TM)."
All other brand names or trademarks appearing in this prospectus are the
property of the companies that own them. The inclusion of other companies'
brand names and products in this prospectus is not an endorsement of Fogdog
Sports. These companies are not involved with the offering of our securities.
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The Offering
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Common stock offered...... 6,000,000 Shares
Common stock to be
outstanding after
the offering............. 35,665,236 Shares
Use of proceeds........... For general corporate purposes, including marketing
and sales activities, working capital and capital
expenditures. We may use a portion of the proceeds
for possible acquisitions. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol............ FOGD
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999, and
excludes:
. 4,502,885 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 at a weighted average exercise
price of $1.05 per share, all of which are immediately exercisable;
however, those shares which have not yet vested are subject to
repurchase by the company;
. 6,296,631 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan that incorporates our Amended and Restated 1996
Stock Option Plan;
. 500,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan;
. 4,114,349 shares of common stock issuable upon exercise of an
outstanding warrant held by Nike USA, Inc. at an exercise price of $1.54
per share, all of which are fully vested and immediately exercisable;
and
. 204,782 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.97 per share, all of
which are fully vested and immediately exercisable.
For additional information regarding these shares, see "Management--Benefit
Plans," "Description of Capital Stock" and Notes 7, 8 and 11 of Notes to
Financial Statements.
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Except as set forth in the financial statements or as otherwise specified in
this prospectus, all information in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. assumes the completion of a two for three reverse stock split;
. reflects the conversion of all of our preferred stock into 23,425,333
shares of common stock upon the completion of this offering; and
. reflects our reincorporation into Delaware before the commencement of
this offering.
See "Description of Capital Stock" and "Underwriting."
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SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
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1996 1997 1998 1998 1999
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Statement of Operations Data:
Total net revenues............... $ 677 $ 1,041 $ 765 $ 516 $ 2,577
Gross profit..................... 587 885 490 405 507
Total operating expenses......... 1,053 1,922 4,665 2,316 15,919
Operating loss................... (466) (1,037) (4,175) (1,911) (15,412)
Net loss......................... (469) (1,045) (4,120) (1,883) (15,136)
Basic and diluted net loss per
share available to
common stockholders............. $(0.13) $ (0.23) $(0.95) $(0.43) $ (6.04)
Basic and diluted weighted
average shares used in
computation of net loss per
share available to
common stockholders............. 3,631 4,543 4,323 4,391 4,645
Pro forma basic and diluted net
loss per share.................. $ (.43) $ (1.33)
Pro forma basic and diluted
weighted average shares......... 9,622 21,059
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<CAPTION>
September 30, 1999
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Actual As Adjusted
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Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $ 21,880 $ 70,600
Working capital........................................... 17,931 66,651
Total assets.............................................. 57,291 106,011
Long-term liabilities..................................... 342 342
Stockholders' equity...................................... 51,340 100,060
</TABLE>
The balance sheet data as of September 30, 1999 is set forth:
. on an actual basis; and
. on an as adjusted basis to reflect each of the adjustments listed above
and the estimated net proceeds from the sale of 6,000,000 shares of
common stock at an assumed initial public offering price of $9.00 per
share after deducting the estimated underwriting discounts and
commissions and our estimated offering expenses.
See "Use of Proceeds" and "Capitalization."
See Note 1 to the consolidated financial statements for computation of basic
and diluted net loss per share.
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RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock. The occurrence of any of the following risks
could materially and adversely affect our business, financial condition and
operating results. In this case, the trading price of our common stock could
decline and you may lose part or all of your investment.
Investing in our common stock may expose you
to the following risks inherent in our business
We expect significant increases in our operating expenses and continuing
losses.
We incurred a cumulative net loss of $20.9 million for the period from
inception through September 30, 1999. Our operating loss for the nine months
ended September 30, 1999 was $15.4 million, for the year ended December 31,
1998 was $4.2 million, and for the year ended December 31, 1997 was $1.0
million. We have not achieved profitability. We only began selling products
under our current business model in November 1998. We may not obtain enough
customer traffic or a high enough volume of purchases to generate sufficient
revenues and achieve profitability. We believe that we will continue to incur
operating and net losses for the next several years, and that the rate at which
we will incur losses will increase significantly from current levels. We intend
to increase our operating expenses substantially as we:
. increase our sales and marketing activities, particularly advertising
efforts;
. provide our customers with promotional benefits, such as selling
selected products or offering shipping below our actual costs;
. increase our general and administrative functions to support our growing
operations;
. expand our customer support and sports consultant staffs to better serve
customer needs;
. develop enhanced technologies and features to improve our web site;
. enhance our distribution and order fulfillment capabilities; and
. expand third-party distribution facilities or possibly buy or build our
own.
Because we will spend these amounts before we receive any revenues from
these efforts, our losses will be greater than the losses we would incur if we
developed our business more slowly. In addition, we may find that these efforts
are more expensive than we currently anticipate, which would further increase
our losses. Also, the timing of these expenses may contribute to fluctuations
in our quarterly operating results.
Our limited operating history makes forecasting difficult. Because most of our
expenses are based on planned operating results, failure to accurately forecast
revenues could cause net losses in a given quarter to be greater than expected.
As a result of our limited operating history, it is difficult to accurately
forecast our revenues and we have limited meaningful historical financial data
upon which to base planned operating expenses. We were incorporated in October
1994. We started as a web site design company and derived most of our revenues
from the sale of web development services until August 1998, when we stopped
selling those services. We began selling products on our web site only in
November 1998. Our results since that time will not be comparable to our prior
results. We base our current and future expense levels on our operating plans,
expected traffic and purchases from our web site and estimates of future
revenues, and our significant expenses are to a large extent fixed in the short
term. Our sales and operating results are difficult to forecast because they
generally depend on the volume and timing of the orders we receive. As a
result, we may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. This inability could cause our
net loss in a given quarter to be greater than expected.
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Our operating results are volatile and difficult to predict. If we fail to meet
the expectations of public market analysts and investors, the market price of
our common stock may decline significantly.
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. Because our operating results are volatile
and difficult to predict, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance. It is
likely that in some future quarter our operating results may fall below the
expectations of securities analysts and investors. In this event, the trading
price of our common stock may decline significantly. Factors that may harm our
business or cause our operating results to fluctuate include the following:
. our inability to obtain new customers at a reasonable cost, retain
existing customers, or encourage repeat purchases;
. decreases in the number of visitors to our web site or our inability to
convert visitors to our web site into customers;
. the mix of sporting goods, apparel, footwear and other products sold by
us;
. our inability to manage inventory levels;
. our inability to adequately maintain, upgrade and develop our web site,
the systems that we use to process customers' orders and payments or our
computer network;
. the ability of our competitors to offer new or enhanced web sites,
services or products;
. price competition;
. fluctuations in the demand for sporting goods associated with sports
events, movies, television and other entertainment events;
. fluctuations in the amount of consumer spending on sporting goods and
related products, which tend to be discretionary spending items;
. the termination of existing marketing relationships with key business
partners or failure to develop new ones;
. increases in the cost of online or offline advertising;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
. unexpected increases in shipping costs or delivery times, particularly
during the holiday season; and
. technical difficulties, system downtime or Internet slowdowns.
A number of factors will cause our gross margins to fluctuate in future
periods, including the mix of products sold by us, inventory management,
inbound and outbound shipping and handling costs, the level of product returns
and the level of discount pricing and promotional coupon usage. Any change in
one or more of these factors could reduce our gross margins in future periods.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations and Seasonality."
Seasonal fluctuations in the sales of sporting goods could cause wide
fluctuations in our quarterly results.
We have experienced and expect to continue to experience seasonal
fluctuations in our revenues. These seasonal patterns will cause quarterly
fluctuations in our operating results. In particular, we expect that the fourth
calendar quarter will account for a large percentage of our total annual sales.
In anticipation of increased sales activity during the fourth calendar quarter,
we may hire a significant number of temporary employees to bolster our
permanent staff and we intend to significantly increase our inventory levels.
For this reason, if our revenues were below seasonal expectations during this
quarter, our annual operating results could be below the expectations of
securities analysts and investors. In the future, our seasonal sales patterns
may become more
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pronounced, may strain our personnel, product distribution and shipment
activities and may cause a shortfall in revenues as compared to expenses in a
given period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
We have been unable to fund our operations with the cash generated from our
business. If we do not generate cash sufficient to fund our operations, we may
need additional financing to continue our growth or our growth may be limited.
To date, we have funded our operations from the sale of equity securities
and have not generated sufficient cash from operations. Cash from revenues must
increase significantly for us to fund anticipated operating expenses
internally. If our cash flows are insufficient to fund these expenses, we may
need to fund our growth through additional debt or equity financings or reduce
costs. Further, we may not be able to obtain financing on satisfactory terms.
Our inability to finance our growth, either internally or externally, may limit
our growth potential and our ability to execute our business strategy. If we
issue securities to raise capital, our existing stockholders may experience
additional dilution or the new securities may have rights senior to those of
our common stock.
We must maintain relationships with our distributors and manufacturers to
obtain sufficient quantities of quality merchandise on acceptable commercial
terms. If we fail to maintain our relationships with those parties on
acceptable terms, our sales and profitability could suffer.
Because we rely primarily on product manufacturers and third-party
distributors to stock the products we offer, our business would be seriously
harmed if we were unable to develop and maintain relationships with suppliers
that allow us to obtain sufficient quantities of quality merchandise on
acceptable terms. Our product orders are fulfilled by more than 15 distributors
and manufacturers. However, our contracts or arrangements with these parties do
not guarantee the availability of merchandise, establish guaranteed prices or
provide for the continuation of particular pricing practices. In addition, we
do not have a written contract with most of our major suppliers. Although we
have alternative sources of supply for a small percentage of the products we
offer, we may have difficulty establishing alternative sources for many of our
products. Our current suppliers may not continue to sell products to us on
current terms or at all, and we may not be able to establish new supply
relationships to ensure delivery of merchandise in a timely and efficient
manner or on terms acceptable to us. Some sporting goods manufacturers may be
slow to adopt the use of the Internet as a distribution channel. In addition,
our supply contracts typically do not restrict a supplier from selling products
to other retailers, which could limit our ability to supply the quantity of
merchandise requested by our customers. If we cannot supply our products to
consumers at acceptable prices, we may lose sales and market share as consumers
make purchases elsewhere. Further, an increase in supply costs could cause our
operating losses to increase beyond current expectations.
If we are unable to establish and maintain relationships with key brand
manufacturers, our sales will decrease.
If we are unable to establish and maintain relationships with important
brand manufacturers, we may be unable to obtain sufficient quantities of
popular products and in-depth product information. This could result in lower
sales. We have never derived more than 40% of our revenues in any quarter from
products purchased directly from manufacturers, although we cannot predict
whether we will exceed this percentage in future periods. For the nine months
ended September 30, 1999, we derived approximately 15% of our net revenues from
sales of our top selling brands, adidas and Nike, although neither of these
brands accounted for in excess of 10% of our net revenues. We recently entered
into an agreement with Nike that will give us access to Nike's generally
available product lines and product information, as well as advance
availability of mutually agreed upon, newly released Nike products. However,
this agreement has a term of only two years and is subject to earlier
termination if we breach the agreement. Moreover, Nike is not legally obligated
to sell us any quantity of product or deliver on any particular schedule. Also,
our purchases from Nike's online affiliate are subject to similar limitations.
If our relationship with Nike deteriorates, our business and reputation could
be seriously harmed. In addition, our relationship with Nike could cause other
existing or future suppliers to modify their
10
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existing relationships with us or prevent new relationships from being formed.
We believe that some of Nike's competitors may be reluctant to enter into an
agreement with us or to provide products for sale on our online store because
of our agreement with Nike. For example, we believe that some competitors may
not want to be featured on our web site because of Nike's involvement with us.
Also, we believe that Nike's competitors may fear that Nike may use its
relationship with us to attempt to gain access to competitive information
concerning those competitors.
We have experienced difficulty in obtaining sufficient product allocations
from some of our key vendors. If we have to rely exclusively on distributors
and not manufacturers, we may not be able to obtain the types and quantities of
the products we desire because of varying demand from their other customers or
temporal limitations on the availability of products from their suppliers. In
addition, Nike and some of our other key vendors have established, and may
continue to expand, their own online retailing efforts, which may impair our
ability to acquire sufficient product allocations from these vendors. In
connection with this expansion, or a decision by manufacturers not to offer
products online or through our web site, manufacturers have asked us and may
again ask us to remove their products from our web site.
We depend on third parties to fulfill all of our customer orders, and any
problems with these parties could impair our operating results and harm our
reputation.
Currently, we rely primarily on third-party distributors and product
manufacturers to fulfill our customers' orders. These fulfillment partners are
responsible for packaging products and arranging for them to be shipped to our
customers. We may be unable to ensure that our fulfillment partners fill our
customers' orders accurately and that orders are shipped promptly and in
appropriate packaging. In addition, we have no written contracts with some of
these fulfillment partners, and our contracts with the others are generally
terminable upon short notice. If any of our existing fulfillment arrangements
were to be terminated, our business could be disrupted and we could incur
significant costs in attempting to make alternative arrangements. Our
distribution network is also heavily dependent upon third-party carriers,
primarily United Parcel Service, for product shipments. UPS accounted for
approximately 90% of our customer shipments by units in the nine months ended
September 30, 1999. We are therefore subject to the risk that labor shortages,
strikes, inclement weather or other factors may limit the ability of UPS and
other carriers to meet our shipping needs. Our shippers' failure to deliver
products to our customers in a timely manner would damage our brand and
adversely affect our operating results. If UPS or our other existing shippers
are unable or unwilling to deliver our products to our customers, we would need
to arrange for alternative carriers. We may be unable to engage an alternative
carrier on a timely basis or upon terms favorable to us. Changing carriers
would likely disrupt our business.
If we fail to expand our fulfillment operations successfully, sales could fall
below expectations and we could incur unexpected costs.
We must be able to fill customer orders quickly and efficiently. If we do
not expand our fulfillment operations and systems to accommodate increases in
demand, particularly during the peak holiday selling season, we will not be
able to increase our net sales in accordance with the expectations of
securities analysts and investors. We intend to add to the capacity of our
distribution network by entering into agreements with additional fulfillment
partners. It may be difficult for us to assimilate new partners into our
distribution system in time for the 1999 holiday season or at all. We may be
unable to secure these additional partners or integrate their systems and
technologies into ours. If we fail to do so, we may lose sales and our
reputation for prompt delivery and customer service would suffer. Even if we
are successful in expanding our distribution network, our planned expansion may
cause disruptions in our business and our fulfillment operations may be
inadequate to accommodate increases in customer demand.
High merchandise returns could adversely affect our financial condition and
results of operations.
We allow our customers to return products within 45 days for a full refund.
We make allowances in our financial statements for anticipated merchandise
returns based on historical return rates. However, actual returns
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may exceed our allowances. If merchandise returns increase significantly or
exceed our allowances, our financial condition and results of operations could
be adversely affected.
We plan to expand our inventory levels, and we may have to write down the value
of our inventory if consumer demand changes after we order products.
Although we currently rely primarily on our distributors and brand name
suppliers to carry the inventory available for purchase on our site, we
anticipate that we will carry an increasing amount of inventory and that the
percentage of sales made from our own inventory will rise. As a result, it will
be critical to our success that we accurately predict the rapidly changing
trends in consumer preferences for sporting goods, and do not overstock
unpopular products. Predicting these trends is difficult. If demand for one or
more of our products falls short of our expectations, we may be required to
take significant inventory markdowns, which could reduce our net sales and
gross margins. This risk may be greatest in the first calendar quarter of each
year, after we have significantly increased inventory levels for the holiday
season. In addition, to the extent that demand for our products increases over
time, we may be forced to increase inventory levels. Any increase would subject
us to additional inventory risks.
We rely substantially on our relationships with America Online and other online
services, search engines and directories to drive traffic to our web site. If
these relationships do not continue, it will be difficult for us to increase
market share and achieve profitability.
We have relationships with America Online, Inc. and other online services,
search engines and directories to provide content and advertising banners that
link to our web site. We rely on these relationships as significant sources of
traffic to our web site and, therefore, new customers. However, these
relationships are generally terminable on short notice, and they may not be
available to us in the future on acceptable terms. If we are unable to maintain
satisfactory relationships with high-traffic web sites on acceptable terms, our
ability to attract new customers and enhance our brand could be harmed.
Further, many of the web sites with which we have existing or potential online
advertising arrangements may also provide advertising services for other
marketers of sporting goods. As a result, these sites may be reluctant to enter
into or maintain relationships with us. Our online advertising efforts may
require costly, long-term commitments. We may not achieve sufficient online
traffic or product purchases to realize sufficient sales to compensate for our
significant obligations to these sites. Failure to achieve sufficient traffic
or generate sufficient revenue from purchases originating from third-party web
sites would likely reduce our profit margins and may result in termination of
these types of relationships. Without these relationships, it is unlikely that
we can sufficiently increase market share and achieve profitability.
Because a key element of our strategy is to generate a high volume of traffic
on our web site, our business could be harmed by capacity constraints.
A key element of our strategy is to generate a high volume of traffic on,
and use of, our web site, www.fogdog.com. Accordingly, the satisfactory
performance, reliability and availability of our web site, transaction-
processing systems and network infrastructure are critical to our reputation
and our ability to attract and retain customers and maintain adequate customer
service levels. Our revenue depends upon the number of visitors who shop on our
web site and the volume of orders that we can fulfill. Any system interruptions
that result in the unavailability of our web site or reduced order fulfillment
would reduce the volume of goods that we sell and the attractiveness of our
product offerings. We have experienced periodic system interruptions in the
past, and we believe that system interruptions may continue to occur in the
future. Any substantial increase in the volume of traffic on our web site or
the number of orders placed by customers will require that we expand and
upgrade our technology, transaction-processing systems and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our web site or timely expand and upgrade our
technology, transaction-processing systems and network infrastructure. We may
not be able to accurately project the rate or timing of increases, if any, in
the use of our web site or timely expand and upgrade our systems and
infrastructure to accommodate these increases.
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Our vital computer and communications hardware and software systems are
vulnerable to damage and interruption which could harm our business.
Our success, in particular our ability to successfully receive and fulfill
orders and provide high-quality customer service, largely depends upon the
efficient and uninterrupted operation of our computer and communications
hardware and software systems. We use internally developed systems for our web
site and some aspects of transaction processing, including customer profiling
and order verifications. Our systems and operations are vulnerable to damage or
interruption from:
. earthquake, fire, flood and other natural disasters;
. power loss, computer systems failures, Internet and telecommunications
or data network failure, operator negligence, improper operation by or
supervision of employees, physical and electronic loss of data or
security breaches, misappropriation and similar events; and
. computer viruses.
In addition, we maintain our servers at the site of a third party, Exodus
Communications, Inc., in Mountain View, California. We cannot control the
maintenance and operation of this site, which is also susceptible to similar
disasters and problems. We have no formal disaster recovery plan, and our
insurance policies may not adequately compensate us for any losses that we may
incur. Any system failure that causes an interruption in our service or a
decrease in responsiveness could harm our relationships with our customers and
result in reduced revenues. See "Business--Technology."
Establishing the Fogdog brand quickly and cost-effectively is central to our
success. If we do not establish the Fogdog brand quickly, we may not capture
sufficient market share or increase revenues enough to achieve profitability.
We believe that we must establish, maintain and enhance the Fogdog brand to
attract more customers to our web site and to generate revenues from product
sales. Brand recognition and customer loyalty will become increasingly
important as more companies with well-established brands in online services or
the sporting goods industry offer competing services on the Internet. For
example, existing sporting goods retailers with established brand names may
establish an online presence that competes with our web site and existing
online providers with better name recognition than Fogdog Sports may begin
selling sporting goods. Establishing the Fogdog brand as a widely recognized
and trusted source of sporting goods will depend largely on our success in
providing a high-quality online experience supported by a high level of
customer service, which cannot be assured. We expect that we will need to
increase substantially our spending on programs designed to create and maintain
strong brand loyalty among customers and we cannot be certain that our efforts
will be successful.
Our inability to secure and protect our Internet domain name may adversely
affect our business operation.
The www.fogdog.com Internet domain name is our brand on the Internet. In
October 1999, a third party challenged the use of the domain name as a
violation of a registered trademark. If we are unable to adequately protect our
Internet domain name, our trademarks and other intellectual property rights, or
must incur costs in doing so, it could harm our business. The acquisition and
maintenance of Internet domain names generally is regulated by governmental
agencies and their designees. Until recently, Network Solutions, Inc. was the
exclusive registrar for the ".com," ".net" and ".org" generic top-level
Internet domains in the U.S. In April 1999, however, the Internet Corporation
for Assigned Names and Numbers, or ICANN, a new global non-profit corporation
formed to oversee a set of the Internet's core technical management functions,
opened the market for registering Internet domain names to an initial group of
five companies. Network Solutions, Inc. still maintains the registry containing
all the registrations in the generic top-level Internet domains. The market for
registering these Internet domain names in the U.S. and in foreign countries is
expected to undergo further changes in the near future. We expect the
requirements for registering Internet domain names also to be affected. The
relationship between regulations governing Internet domain names and laws
protecting
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trademarks and similar proprietary rights is unclear. We may be unable to
prevent third parties from acquiring Internet domain names that are similar to,
infringe upon or otherwise decrease the value of our Internet domain name, our
trademarks and other intellectual property rights used by us and we may need to
protect our rights through litigation.
We may not be able to compete successfully against current and future
competitors, which could harm our margins and our business.
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to
intensify in the future because current and new competitors can enter our
market with little difficulty and can launch new web sites at a relatively low
cost.
In addition, the development of new technologies and the expansion of
existing technologies, such as price comparison programs that select specific
products from a variety of web sites, may increase competitive pressures on us.
We currently or potentially compete with a variety of other companies,
including:
. traditional, store-based, national chain sporting goods retailers such
as the Venator Group (Footlocker brands and Champs);
. traditional, store-based, national chain outdoor equipment retailers,
such as REI;
. traditional, store-based, national chain athletic footwear retailers,
such as Just for Feet;
. traditional, store-based, regional chain sporting goods retailers such
as The Sports Authority, Dick's Sporting Goods and Galyan's;
. major discount retailers, such as Wal-Mart, Kmart and Target;
. catalog sporting goods retailers, such as Eastbay, TSI and Edwin Watts;
. numerous traditional local sporting goods and outdoor activity stores;
. online efforts of these traditional retailers, including the online
stores operated by Dick's Sporting Goods, Copeland's and REI;
. vendors of sporting goods that currently sell some of their products
directly online, such as K-Swiss and Patagonia;
. Global Sports Interactive, a newly formed online joint venture
established by The Sports Authority, The Athlete's Foot, MC Sports and
Sport Chalet and which may include in the future other store-based
retailers;
. Internet portals and online service providers that feature shopping
services, such as AOL, Excite@Home, GO Network and Lycos;
. other online retailers that include sporting goods as part of their
product offerings, such as Onsale and Buy.com;
. physical and online stores of entertainment entities that sell sporting
goods and fan memorabilia, such as ESPN.com and CBS Sportsline; and
. retailers selling sporting goods exclusively online.
There are no assurances that we will be able to be competitive against
current or potential competitors. Many of our traditional store-based and
online competitors have longer operating histories, larger customer or user
bases, greater brand recognition and significantly greater financial,
marketing, technical and other resources than we do. Many of these competitors
have well established relationships with manufacturers, more extensive
knowledge about our industry and can devote substantially more resources to web
site development
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and advertising. In addition, new competitors may emerge in the future and
larger, well-established and well-financed entities may join with online
competitors or sporting goods suppliers as the use of the Internet and other
online services increases.
Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Furthermore,
our competitors may be able to secure a broader range of products from or
otherwise develop close relationships with primary vendors. Some competitors
may price their products below cost in an attempt to gain market share.
Traditional store-based retailers also enable customers to see and feel
products in a manner that is not possible over the Internet. See "Business--
Competition."
We may be unable to hire and retain the skilled personnel necessary to develop
our business.
We intend to hire a significant number of additional marketing, engineering,
merchandising and retailing personnel in 1999 and beyond. Competition for these
individuals is intense, and we may not be able to attract, assimilate or retain
highly qualified personnel in the future. Our business cannot continue to grow
if we cannot attract qualified personnel. Our failure to attract and retain the
highly trained personnel that are integral to our business may limit our growth
rate, which would harm our business. We expect to face greater difficulty
attracting these personnel with equity incentives as a public company than we
did as a privately held company. See "Business--Employees."
We are dependent upon our chief executive officer for our future success and
our managers are not obligated to stay with us.
Our future success depends to a significant degree on the skills, experience
and efforts of Timothy Harrington, our Chief Executive Officer, and other key
personnel. The loss of the services of any of these individuals could harm our
business and operations. In addition, we have not obtained key person life
insurance on any of our key employees. If any of our key employees left or was
seriously injured and unable to work and we were unable to find a qualified
replacement, our business could be harmed.
We have experienced significant growth in our business in recent periods and
any inability to manage this growth and any future growth could harm our
business.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our management, administrative
resources, software and systems. Any failure to manage growth effectively could
seriously harm our business. We have grown from 40 employees on September 30,
1998 to 96 employees on September 30, 1999. We have also recently moved into a
new headquarters building and significantly expanded our operations. To be
successful, we will need to continue to implement management information
systems and improve our operating, administrative, financial and accounting
systems and controls. We will also need to train new employees and maintain
close coordination among our executive, accounting, finance, marketing, sales
and operations organizations. These processes are time consuming and expensive,
will increase management responsibilities and will divert management attention.
If the protection of our trademarks and proprietary rights is inadequate, our
brand and reputation could be damaged and we could lose customers.
The steps we take to protect our proprietary rights may be inadequate. We
regard our copyrights, service marks, trademarks, trade dress, trade secrets
and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to
protect our proprietary rights. Despite these precautions, it may be possible
for a third-party to copy or otherwise obtain and use our intellectual property
without our authorization. We have applied to register the trademark Fogdog in
the United States and internationally. Effective trademark, service mark,
copyright and trade secret protection may not be available in every country
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in which we will sell our products and services online. If we become involved
in litigation to defend our intellectual property rights, we may have to spend
significant amounts of money, and the litigation could divert our management's
time and efforts.
We may be subject to intellectual property claims that could be costly and
could disrupt our business.
Third parties have in the past and may in the future assert that our
business or technologies infringe their intellectual property rights. From time
to time, we have received notices from third parties questioning our right to
present specific images or mention athletes' names on our Web site, or stating
that we have infringed their trademarks or copyrights. In addition, in June
1999 we received a letter from a third party stating his belief that our
Internet marketing activities infringe a patent for a home shopping device and
inviting us to license this technology. Also, in October 1999 we received a
letter from a third party alleging that our use of the trademark "Fogdog" and
the domain name for our web site fogdog.com infringed a registered trademark
licensed by this third party, and further alleging unfair competition under
state and federal trademark law. We may in the future receive additional claims
that we are engaging in unfair competition or other illegal trade practices.
These claims may increase in the future. We may be unsuccessful in defending
against any such claim, which could result in substantial damages, fines or
other penalties. The resolution of a claim could also require us to change how
we do business, redesign our web site and other systems, or enter into
burdensome royalty or licensing agreements. In particular, we may have to enter
into a license to use our domain name, or we could even be forced to change our
name, either of which would severely harm our business. These license or
royalty agreements, if required, may not be available on acceptable terms, if
at all, in the event of a successful claim of infringement. Our insurance
coverage may not be adequate to cover every claim that could be asserted
against us. Even unsuccessful claims could result in significant legal fees and
other expenses, diversion of management's time and disruptions in our business.
Any such claim could also harm our reputation and brand.
We intend to expand our business internationally, causing our business to
become increasingly susceptible to numerous international business risks and
challenges that could affect our profitability.
We believe that the current globalization of the economy requires businesses
to pursue or consider pursuing international expansion. We have expanded into
international markets by opening an office in London. Revenue from merchandise
shipped outside the United States was approximately 9% of total merchandise
revenue for the nine months ended September 30, 1999, and we expect to increase
our international sales efforts. International sales are subject to inherent
risks and challenges that could affect our profitability, including:
. the need to develop new supplier and manufacturer relationships,
particularly because major sporting goods manufacturers may require that
our international operations deal with local distributors;
. unexpected changes in international regulatory requirements and tariffs;
. difficulties in staffing and managing foreign operations;
. longer payment cycles from credit card companies;
. greater difficulty in accounts receivable collection;
. potential adverse tax consequences;
. price controls or other restrictions on foreign currency; and
. difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any negative
effects on our international business could negatively impact our business,
operating results and financial condition as a whole. In particular, gains and
losses on the conversion of foreign payments into U.S. dollars may contribute
to fluctuations in our results of operations and fluctuating exchange rates
could cause reduced gross revenues and/or gross margins from dollar-denominated
international sales.
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We may encounter significant difficulties in integrating our recent
acquisition, Sports Universe, which could divert our management's attention and
harm our business.
In early September 1999, we completed the acquisition of Sports Universe,
Inc. We acquired Sports Universe because we believe that we can achieve a
broader and more complete product offering for our consumers by combining our
products, marketing, consumer experience, distribution channels and client base
with the "action sports" line of Sports Universe. We may not be able to
successfully integrate the businesses and product offerings of the two
companies. The process of combining the two companies and their product
offerings may cause an interruption of, or a loss of momentum in, the
activities of either or both of the companies' businesses, which could
adversely affect their combined operations. Our management may have to divert
attention from our day-to-day business and devote substantial resources to
retaining employees and maintaining other relationships. If we fail to
successfully complete the integration of Sports Universe, our business could be
harmed.
Acquisitions of companies or technologies may result in disruptions to our
business and management due to difficulties in assimilating personnel and
operations.
We may make acquisitions or investments in other companies or technologies.
We may not realize the anticipated benefits of any acquisition or investment.
If we make any acquisitions, we will be required to assimilate the operations,
products and personnel of the acquired businesses and train, retain and
motivate key personnel from the acquired businesses. We may be unable to
maintain uniform standards, controls, procedures and policies if we fail in
these efforts. Similarly, acquisitions may cause disruptions in our operations
and divert management's attention from day-to-day operations, which could
impair our relationships with our current employees, customers and strategic
partners. In addition, our profitability may suffer because of acquisition-
related costs or amortization costs for acquired goodwill and other intangible
assets.
We may be subject to product liability claims or other claims that could be
costly and time consuming.
We sell products manufactured by third parties, some of which may be
defective. If any product that we sell were to cause physical injury or injury
to property, the injured party or parties could bring claims against us as the
retailer of the product. Our insurance coverage may not be adequate to cover
every claim that could be asserted against us. Similarly, we could be subject
to claims that users of the site were harmed due to their reliance on our
product information, product selection guides and configurators, advice or
instruction. If a successful claim were brought against us in excess of our
insurance coverage, it could harm our business. Even unsuccessful claims could
result in the expenditure of funds and management time and could have a
negative impact on our business.
Because of their significant stock ownership, our officers and directors will
be able to exert significant control over our future direction.
After this offering, our executive officers and directors, their affiliates
and other substantial stockholders will together control approximately 49.3% of
our outstanding common stock. As a result, these stockholders, if they act
together, will be able to control all matters requiring our stockholders'
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may delay, prevent or
deter a change in control, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of the company or
its assets and might adversely affect the market price of our common stock.
Provisions of our certificate of incorporation and bylaws may make changes of
control difficult, even if they would be beneficial to stockholders.
After this offering, the board of directors will have the authority to issue
up to 5,000,000 shares of preferred stock. Also, without any further vote or
action on the part of the stockholders, the board of directors
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will have the authority to determine the price, rights, preferences, privileges
and restrictions of the preferred stock. If we issue preferred stock, it might
have preference over and harm the rights of the holders of common stock.
Although the availability of this preferred stock will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, the issuance of preferred stock may make it more difficult for a
third-party to acquire a majority of our outstanding voting stock. We currently
have no plans to issue preferred stock.
Our certificate of incorporation and bylaws include provisions that may
deter an unsolicited offer to purchase us. These provisions, coupled with the
provisions of the Delaware General Corporation Law, may delay or impede a
merger, tender offer or proxy contest. Further, upon reincorporation into
Delaware, our board of directors will be divided into three classes, only one
of which will be elected each year. Our directors will only be removable by the
affirmative vote of at least 66 2/3% of all classes of voting stock. These
factors may further delay or prevent a change of control. See "Description of
Capital Stock--Antitakeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
We will rely on email and other forms of direct online marketing. Our business
could suffer if these marketing techniques encounter consumer resistance or
increased governmental regulation.
We send emails to our registered users to obtain feedback about our online
store, to provide order information and to promote repeat sales. We may expand
our use of email and other direct online marketing techniques. If consumers
resist these forms of communication due to concerns about privacy, computer
viruses or the proliferation of commercial email, our business and reputation
could be damaged. We also anticipate that our use of email and other direct
online marketing techniques will be subject to increasingly stringent
regulation. For example, several states have passed laws limiting the use of
email for marketing purposes. To date, these laws have not had a significant
effect on us because they focus primarily on unsolicited email marketing and we
currently ask for our customers' permission before sending them email. However,
other states and Congress have begun to consider placing restrictions on email
marketing. This additional legislation could hamper our ability to provide
effective customer service and generate repeat sales.
If we experience significant inventory theft, our gross margin may decrease.
If the security measures used at any distribution facility we use or operate
do not significantly reduce or prevent inventory theft, our gross margin may
significantly decrease. During the nine months ended September 30, 1999, we
experienced an immaterial amount of inventory theft. However, this theft may
increase as we expand our fulfillment operations and distribution network. If
measures we take to address inventory theft do not reduce or prevent inventory
theft, our gross margin and results of operations could be significantly below
expectations in future periods.
Risks specific to the Internet and our industry
Sporting goods consumers may not accept our online business model. This may
result in slower revenue growth, loss of revenue and increased operating
losses.
To be successful, we must attract and retain a significant number of
consumers to our web site at a reasonable cost. Any significant shortfall in
the number of transactions occurring over our web site will negatively affect
our financial results by increasing or prolonging operating losses. Conversion
of customers from traditional shopping methods to electronic shopping may not
occur as rapidly as we expect, or at all. Therefore, we may not achieve the
critical mass of customer traffic we believe is necessary to become successful.
Specific factors that could prevent widespread customer acceptance of our
online business model, and our ability to grow our revenue, include:
. customer concerns about the security of online transactions;
. customer concerns about buying sporting goods, footwear and other
products without first seeing them;
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. delivery time before customers receive Internet orders, unlike the
immediate receipt of products at traditional retail outlets;
. pricing that may not meet customer expectations;
. customer resistance to shipping charges, which generally do not apply to
purchases from traditional retail outlets;
. shipment of damaged goods or wrong products from our suppliers; and
. difficulties in returning or exchanging orders.
The success of our business model is dependent upon the continued growth of the
online commerce infrastructure.
Our future revenue and any future profits are also dependent upon the
continued development of the online commerce infrastructure. The Internet and
other online services may not be accepted as a viable commercial marketplace
for a number of reasons, including potentially inadequate development of
enabling technologies and performance improvements. To the extent that the
Internet and other online services continue to experience significant growth in
the number of users, their frequency of use or an increase in their bandwidth
requirements, there can be no assurance that the infrastructure for the
Internet and other online services will be able to support the demands placed
upon them. In addition, the Internet or other online services could lose their
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet or other online
service activity. Changes in or insufficient availability of telecommunications
services to support the Internet or other online services could result in
slower response times and adversely affect usage of the Internet and other
online services, including fogdog.com. These problems would adversely affect
our business and cause our stock price to decline.
Sporting goods and apparel are subject to changing consumer preferences. If we
fail to anticipate these changes, we will experience lower sales, higher
inventory markdowns and lower margins.
Our success depends upon our ability to anticipate and respond to trends in
sporting goods merchandise and consumers' participation in sports. Consumers'
tastes in apparel and sporting goods equipment are subject to frequent and
significant changes, due in part to manufacturers' efforts to incorporate
advanced technologies into some types of sporting goods. In addition, the level
of consumer interest in a given sport can fluctuate dramatically. If we fail to
identify and respond to changes in sporting goods merchandising and
recreational sports participation, our sales could suffer and we could be
required to mark down unsold inventory. This would depress our profit margins.
In addition, any failure to keep pace with changes in consumers' recreational
sports habits could allow our competitors to gain market share and could hurt
our reputation.
If we do not respond to rapid technological changes, our services could become
obsolete and we could lose customers.
To be competitive, we must continue to enhance and improve the functionality
and features of our online store. The Internet and the online commerce industry
are rapidly changing. If competitors introduce new products and services
featuring new technologies, or if new industry standards and practices emerge,
our existing web site and proprietary technology and systems may become
obsolete. We may use new technologies ineffectively, or we may be unable to
license or otherwise obtain new technologies from third parties. We may also
experience difficulties in adapting our web site, the systems that we use to
process customers' orders and payments, our computer network to customer
requirements, new technologies or emerging industry standards.
Governmental regulation may slow the Internet's growth and increase our costs
of doing business.
Laws and regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. These laws and regulations could
expose us to compliance costs and substantial liability, which
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could materially harm our business, operating results and financial condition.
In addition, the growth of the Internet, coupled with publicity regarding
Internet fraud, may lead to the enactment of more stringent consumer protection
laws. These laws would be likely to impose additional burdens on our business.
The adoption of any additional laws or regulations may also inhibit the
expansion of the Internet, which could reduce visits to our online store or
otherwise harm our business. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as qualifications
to do business, property ownership, sales tax, obscenity, employment, libel,
intellectual property and personal privacy is uncertain and may take years to
resolve. In order to comply with new or existing laws regulating online
commerce, we may need to modify the manner in which we do business, which may
result in additional expenses and could slow our growth. For instance, we may
need to spend time and money revising the process by which we fulfill customer
orders to ensure that each shipment complies with applicable laws. We may also
need to revise our customer acquisition and registration processes to comply
with increasingly stringent laws relating to dealing with minors online. We may
need to hire additional personnel to monitor our compliance with applicable
laws. We may also need to modify our software to further protect our customers'
personal information.
Regulations imposed by the Federal Trade Commission may adversely affect the
growth of our Internet business or our marketing efforts.
The Federal Trade Commission has proposed regulations regarding the
collection and use of personal identifying information obtained from
individuals when accessing web sites, with particular emphasis on access by
minors. These regulations may include requirements that we establish procedures
to disclose and notify users of privacy and security policies, obtain consent
from users for collection and use of information and provide users with the
ability to access, correct and delete personal information stored by us. These
regulations may also include enforcement and remedial provisions. Even in the
absence of those regulations, the Federal Trade Commission has begun
investigations into the privacy practices of other companies that collect
information on the Internet. One investigation resulted in a consent decree
under which an Internet company agreed to establish programs to implement the
principles noted above. We may become a party to a similar investigation or
enforcement proceeding, or the Federal Trade Commission's regulatory and
enforcement efforts may harm our ability to collect demographic and personal
information from users, which could be costly or adversely affect our marketing
efforts.
Our inability to securely transmit confidential information over public
networks may harm our business and cause our stock price to decline.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. We rely upon
encryption and authentication technology licensed from third parties to effect
the secure transmission of confidential information, such as customer credit
card numbers. Advances in computer capabilities, new discoveries in the field
of cryptography or other events may result in a compromise or breach of the
systems that we use to protect customer transaction data. A party who is able
to circumvent our security measures may misappropriate proprietary information
or customers' personal data such as credit card numbers, and could interrupt
our operations. We may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate problems
caused by these breaches. In addition, security breaches may damage our
reputation and cause our stock price to decline.
Credit card fraud could adversely affect our business.
A failure to adequately control fraudulent credit card transactions could
reduce our net revenues and our gross margin because we do not carry insurance
against this risk. We have put in place technology to help us detect the
fraudulent use of credit card information and have not suffered material losses
to date. However, we may in the future suffer losses as a result of orders
placed with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card
practices, we are liable for fraudulent credit card transactions because we do
not obtain a cardholder's signature.
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If one or more states successfully assert that we should collect sales or other
taxes on the sale of our merchandise, our business could be harmed.
We do not currently collect sales or other similar taxes for physical
shipments of goods into states other than California and Pennsylvania. However,
one or more local, state or foreign jurisdictions may seek to impose sales tax
collection obligations on us and other out-of-state companies that engage in
online commerce. If one or more states or any foreign country successfully
asserts that we should collect sales or other taxes on the sale of our
merchandise, it could adversely affect our business.
We may be subject to liability for content on our web site.
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, right of publicity or privacy, patent or
trademark infringement, or other claims based on the nature and content of
materials that we publish or distribute. We have, in the past, received notices
of such claims, and we expect to continue to receive such claims in the future.
We may also be subject to claims based on the content on our bulletin boards.
If we face liability, then our reputation and our business may suffer. In the
past, plaintiffs have brought these types of claims and sometimes successfully
litigated them against online services. Although we carry general liability
insurance, our insurance currently does not cover claims of these types.
Year 2000 issues present technological risks, could disrupt our business and
could decrease our sales.
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with these year 2000 requirements or risk system
failure or miscalculations causing disruption of normal business activities.
Any failure of our material systems, our suppliers' and fulfillment
partners' material systems or the Internet to be year 2000 compliant could
result in financial loss to us, harm to our reputation and legal liability. We
are currently assessing the year 2000 readiness of the software, computer
technology and other services that we use that may not be year 2000 compliant.
We have not completed all operational tests on our internal systems.
Accordingly, we are unable to predict to what extent our business may be
affected if our software, the systems that operate in conjunction with our
software or our internal systems experience a material year 2000 failure. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
Risks Related to This Offering
Our management has broad discretion as to how to use the proceeds from this
offering and the proceeds may not be appropriately used.
We intend to use the proceeds from this offering for general corporate
purposes, including working capital and capital expenditures, and we may use a
portion of the proceeds to acquire other businesses, products or technologies.
We will in any case have broad discretion over how we use these proceeds. You
will not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions regarding how to use the proceeds
from this offering, and we may spend these proceeds in ways with which you may
disagree. Pending any of these uses, we plan to invest the proceeds of this
offering in short-term, investment-grade, interest-bearing securities. We
cannot predict whether these investments will yield a favorable return. See
"Use of Proceeds."
21
<PAGE>
The price of our common stock after this offering may be lower than the
offering price you pay and may be volatile.
Prior to this offering, our common stock has not been sold in a public
market. After this offering, an active trading market in our stock might not
develop. If an active trading market develops, it may not continue. Moreover,
if an active market develops, the trading price of our common stock may
fluctuate widely as a result of a number of factors, many of which are outside
our control. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market prices of many Internet
related companies, and which have often been unrelated or disproportionate to
the operating performance of these companies. These broad market fluctuations
could adversely affect the market price of our common stock. A significant
decline in our stock price could result in substantial losses for individual
stockholders and could lead to costly and disruptive securities litigation.
If you purchase shares of our common stock in this offering, you will pay a
price that was not established in a competitive market. Rather, you will pay a
price that we negotiated with the representatives of the underwriters based
upon a number of factors. The price of our common stock that will prevail in
the market after this offering may be higher or lower than the offering price.
See "Underwriting."
You will experience immediate and substantial dilution in the value of your
shares following this offering.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay per
share will be substantially greater than our net tangible book value per share,
or the per share value of our assets after subtracting our liabilities.
Specifically, purchasers of shares of our common stock in this offering will
contribute 56.3% of the total amount paid to fund our company but will own only
16.8% of our outstanding shares. Additionally, if the holders of outstanding
options and warrants exercise their options or warrants, purchasers of shares
of our common stock in this offering will own only 13.5% of our outstanding
shares while contributing 50.3% of the total amount paid to fund our company.
See "Dilution."
Substantial amounts of our common stock could be sold in the near future, which
could depress our stock price.
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
common stock or the availability of shares of common stock for sale will have
on the market price of the common stock prevailing from time to time. If our
stockholders sell substantial amounts of our common stock in the public market
following this offering, including shares issued upon the exercise of
outstanding options and warrants, the trading price of our common stock could
fall. These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, based upon shares outstanding as
of September 1999, we will have 35,665,236 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options and warrants. All of the shares we are selling in this
offering may be resold in the public market immediately. Another 29,602,871
shares are subject to lock-up agreements and will become available for resale
in the public market beginning 180 days after the date of this prospectus. As
restrictions on resale end, our stock price could drop significantly if the
holders of these restricted shares sell them or are perceived by the market as
intending to sell them. See "Shares Available for Future Sale."
22
<PAGE>
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws, which involve risks and uncertainties. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our industry, our beliefs
and assumptions. We use words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and variations of these words and
similar expressions to identify forward-looking statements. These statements
are not guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties include those described in "Risk Factors" and elsewhere in
this prospectus. You should not place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We undertake no obligation to update these statements or publicly
release the result of any revision to the forward-looking statements that we
may make to reflect events or circumstances after the date of this prospectus
or to reflect the occurrence of unanticipated events.
23
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale and issuance of the 6,000,000 shares of
common stock offered are estimated to be $48.7 million at an assumed initial
public offering price of $9.00 per share after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses. If
the underwriters' over-allotment option is exercised in full, our estimated net
proceeds will be $56.3 million. We intend to use the net proceeds for general
corporate purposes, including marketing and sales activities, working capital
and capital expenditures, but we have no specific plans for use of the net
proceeds of this offering. Pending these uses, we will invest the net proceeds
of the offering in short-term, interest-bearing investment-grade securities.
See "Risk Factors--Our management has broad discretion as to how to use the
proceeds from this offering and the proceeds may not be appropriately used." In
addition, we may use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. We currently have no agreements or commitments with
respect to any acquisition or investment, and we are not involved in any
negotiations with respect to any similar transaction.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion. Our credit facility with Imperial Bank prohibits us from paying
dividends without prior approval.
24
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on the following three bases:
. on an actual basis;
. on a pro forma basis giving effect to the conversion of all
outstanding shares of preferred stock into shares of common stock
effective upon the completion of this offering; and
. on a pro forma as adjusted basis to reflect each of the adjustments
listed above and the estimated net proceeds from the sale of
6,000,000 shares of our common stock at an assumed initial public
offering price of $9.00 per share after deducting the estimated
underwriting discounts and commissions and our estimated offering
expenses.
You should read this table in conjunction with our financial statements and
the notes to our financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion........... $ 342 $ 342 $ 342
-------- -------- --------
Stockholders' equity:
Convertible Preferred Stock, issuable in
series, $0.001 par value, 41,796,282,
41,796,282 and 5,000,000 shares authorized
actual, pro forma and pro forma as adjusted,
respectively; 23,425,000, no shares and no
shares issued and outstanding actual, pro
forma and pro forma as adjusted,
respectively................................ 24 -- --
Common Stock, $0.001 par value, 72,000,000,
72,000,000 and 100,000,000 shares authorized
actual, pro forma and pro forma as adjusted,
respectively; and 6,240,000, 29,665,000 and
35,665,000 shares issued and outstanding
actual, pro forma and pro forma as adjusted,
respectively................................ 6 30 36
Additional paid-in capital................... 82,592 82,592 131,306
Notes receivable ............................ (94) (94) (94)
Unearned stock-based compensation............ (10,270) (10,270) (10,270)
Accumulated deficit.......................... (20,918) (20,918) (20,918)
-------- -------- --------
Total stockholders' equity................. 51,340 51,340 100,060
-------- -------- --------
Total capitalization..................... $ 51,682 $ 51,682 $100,402
======== ======== ========
</TABLE>
The number of shares outstanding as of September 30, 1999 excludes:
. 4,502,885 shares of common stock issuable upon exercise of stock
options outstanding as of September 30, 1999 at a weighted average
exercise price of $1.15 per share, all of which are immediately
exercisable; however, those shares which have not yet vested are
subject to repurchase by the company;
. 6,296,631 shares of common stock reserved for issuance under the 1999
Stock Incentive Plan that incorporates our Amended and Restated 1996
Stock Option Plan;
. 500,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan;
. 4,114,349 shares of common stock issuable upon exercise of an
outstanding warrant held by Nike USA, Inc. at an exercise price of
$1.54 per share, all of which are fully vested and immediately
exercisable; and
. 204,782 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.97 per share, all
of which are fully vested and immediately exercisable.
For additional information regarding these shares, see "Management--Benefit
Plans," "Description of Capital Stock" and Notes 7, 8 and 11 of Notes to
Financial Statements.
25
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. Our pro forma net tangible book value at
September 30, 1999, was approximately $48.9 million, or $1.65 per share of
common stock. Pro forma net tangible book value per share represents total
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding after giving effect to the conversion of all
outstanding convertible preferred stock. After giving effect to the sale of
6,000,000 shares of our common stock at an assumed initial public offering
price of $9.00 per share, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible
book value at September 30, 1999, would have been $97.6 million, or $2.74 per
share. This represents an immediate increase in net tangible book value of
$1.09 per share to existing stockholders and an immediate dilution of $6.26 per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $9.00
Pro forma net tangible book value per share at September 30,
1999........................................................... $1.65
Increase per share attributable to new investors................ 1.09
-----
Pro forma as adjusted net tangible book value per share after the
offering......................................................... 2.74
-----
Dilution per share to new investors............................... $6.26
=====
</TABLE>
The following table summarizes, at September 30, 1999, on a pro forma as
adjusted basis, the total number of shares and consideration paid to us and the
average price per share paid by existing stockholders and by new investors
purchasing shares of common stock in this offering at an assumed initial public
offering price of $9.00 per share and before deducting the estimated
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 29,665,236 83.2% $41,937,000 43.7% $1.41
New public investors....... 6,000,000 16.8 54,000,000 56.3 9.00
---------- ----- ----------- -----
Totals................... 35,665,236 100.0% $95,937,000 100.0%
========== ===== =========== =====
</TABLE>
The above computations are based on the number of shares of common stock
outstanding as of September 30, 1999 and exclude:
. 4,502,885 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 at a weighted average exercise
price of $1.05 per share, all of which are immediately exercisable;
however, those shares which have not yet vested are subject to
repurchase by the company;
. 6,296,631 shares of common stock reserved for issuance under the 1999
Stock Incentive Plan that incorporates our Amended and Restated 1996
Stock Option Plan;
. 500,000 shares of common stock reserved for issuance under the 1999
Employee Stock Purchase Plan;
. 4,114,349 shares of common stock issuable upon exercise of an
outstanding warrant held by Nike USA, Inc. at an exercise price of $1.54
per share, all of which are fully vested and immediately exercisable;
and
. 204,782 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $1.97 per share, all of
which are fully vested and immediately exercisable.
If these options or warrants are exercised, new investors will own only
13.5% of our outstanding shares while contributing 50.3% of the total amount
paid to fund our company. For additional information regarding these shares,
see "Capitalization," "Management--Benefit Plans," "Description of Capital
Stock" and Notes 7, 8 and 11 of Notes to Financial Statements.
26
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes included elsewhere in this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998, and the balance
sheet data as of December 31, 1997 and 1998, are derived from the audited
financial statements included elsewhere in this prospectus. The statement of
operations data for the period from inception (October 28, 1994) to December
31, 1994 and for the year ended December 31, 1995, and the balance sheet data
as of December 31, 1994, 1995 and 1996, are derived from the audited financial
statements not included elsewhere in this prospectus. The statement of
operations data for the nine months ended September 30, 1998 and 1999 and the
balance sheet data as of September 30, 1999 are derived from the unaudited
financial statements included elsewhere in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of this information when read in conjunction with the audited
financial statements and related notes. The diluted net loss per share
computation excludes potential shares of common stock (preferred stock, options
and warrants to purchase common stock and common stock subject to repurchase
rights that we hold), since their effect would be antidilutive. See Note 1 of
Notes to Financial Statements for a detailed explanation of the determination
of the shares used to compute actual and pro forma basic and diluted net loss
per share. The historical results are not necessarily indicative of results to
be expected for future periods.
<TABLE>
<CAPTION>
Period from Nine Months
October 28, 1994 Ended September
(inception) to Years Ended December 31, 30,
December 31, -------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
---------------- ------ ------ ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues:
Merchandise........... $ -- $ -- $ -- $ -- $ 195 $ -- $ 2,542
Commission............ -- -- -- 11 123 69 35
Web development....... -- 213 677 1,030 447 447 --
------ ------ ------ ------- ------- ------- --------
Total net revenues.. -- 213 677 1,041 765 516 2,577
------ ------ ------ ------- ------- ------- --------
Cost of revenues:
Merchandise........... -- -- -- -- 157 -- 2,070
Commission............ -- -- -- -- 19 12 --
Web development....... -- 84 90 156 99 99 --
------ ------ ------ ------- ------- ------- --------
Total cost of
revenues........... -- 84 90 156 275 111 2,070
------ ------ ------ ------- ------- ------- --------
Gross profit............ -- 129 587 885 490 405 507
------ ------ ------ ------- ------- ------- --------
Operating expenses:
Marketing and sales... 2 65 686 1,285 2,399 997 10,807
Site development...... 90 15 119 259 1,318 737 2,205
General and
administrative....... 11 87 248 378 705 457 1,181
Amortization of
intangible assets ... -- -- -- -- -- -- 144
Amortization of stock-
based compensation... -- -- -- -- 243 125 1,582
------ ------ ------ ------- ------- ------- --------
Total operating
expenses........... 103 167 1,053 1,922 4,665 2,316 15,919
------ ------ ------ ------- ------- ------- --------
Operating loss ......... (103) (38) (466) (1,037) (4,175) (1,911) (15,412)
Interest income
(expense), net......... (1) (6) (3) (8) 29 2 276
Other income............ -- -- -- -- 26 26 --
------ ------ ------ ------- ------- ------- --------
Net loss................ (104) (44) (469) (1,045) (4,120) (1,883) (15,136)
Deemed preferred stock
dividend............... -- -- -- -- -- -- (12,918)
------ ------ ------ ------- ------- ------- --------
Net loss available to
common stockholders.... $ (104) $ (447) $ (469) $(1,045) $(4,120) $(1,883) $(28,054)
====== ====== ====== ======= ======= ======= ========
Basic and diluted net
loss per share
available to common
stockholders........... $(0.20) $(0.14) $(0.13) $ (0.23) $ (0.95) $ (0.43) $ (6.04)
====== ====== ====== ======= ======= ======= ========
Basic and diluted
weighted average shares
used in computation of
net loss per share
available to common
stockholders .......... 525 3,105 3,631 4,543 4,323 4,391 4,645
====== ====== ====== ======= ======= ======= ========
Pro forma basic and
diluted net loss per
share.................. $ (.43) $ (1.33)
======= ========
Pro forma basic and
diluted weighted
average shares......... 9,622 21,059
======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------ September 30,
1994 1995 1996 1997 1998 1999
---- ---- ---- ----- ------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-
term investments................ $ 23 $ 36 $471 $ 311 $2,117 $21,880
Working capital (deficit)........ (11) (71) 375 (172) 590 17,931
Total assets..................... 51 144 763 580 2,840 57,291
Long-term liabilities............ -- 8 87 3 189 342
Total stockholders' equity
(deficit)....................... 17 (21) 483 (13) 917 51,340
</TABLE>
27
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
Effective September 3, 1999, Fogdog Sports merged with Sports Universe, Inc.
Sports Universe sells equipment and apparel for wakeboarding, waterskiing,
inline skating, surfing and skateboarding on the Internet. The merger was
accounted for using the purchase method of accounting and accordingly the
purchase price was allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their fair values as of the acquisition
date. The total purchase price of approximately $2.1 million consisted of
266,665 shares of Fogdog Sports common stock with an estimated fair value of
approximately $8.00 per share and other acquisition related expenses of
approximately $30,000, consisting primarily of payments for professional fees.
The purchase price was allocated as follows: $451,000 to net tangible
liabilities assumed and $2.6 million to goodwill. The acquired goodwill will be
amortized over its estimated useful life of two years. The following unaudited
pro forma consolidated statement of operations gives effect to this merger as
if it had occurred on February 9, 1998 (inception) by consolidating the results
of operations of Sports Universe from inception through December 31, 1998 and
the nine months ended September 30, 1999 with the results of operations of
Fogdog Sports. See Note B to Pro Forma Consolidated Financial Information for a
description of the method used to compute basic and diluted net loss per share.
<TABLE>
<CAPTION>
Pro Forma
------------------------------------
Nine Months
Year Ended Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(in thousands, except per share
data)
<S> <C> <C>
Pro Forma Consolidated Statement of
Operations Data:
Net revenues.............................. $ 944 $ 3,062
Cost of revenues.......................... 401 2,397
------- --------
Gross profit............................ 543 665
------- --------
Operating expenses:
Marketing and sales..................... 2,660 10,928
Site development........................ 1,318 2,205
General and administrative.............. 983 1,395
Amortization of intangible assets ...... 1,184 1,005
Amortization of stock-based
compensation........................... 243 1,582
------- --------
Total operating expenses.............. 6,388 17,115
------- --------
Loss from operations...................... (5,845) (16,450)
Interest and other income, net............ 55 276
------- --------
Net loss.................................. (5,790) (16,174)
Deemed preferred stock dividend........... -- (12,918)
------- --------
Net loss available to common
stockholders............................. $(5,790) $(29,092)
======= ========
Basic and diluted loss per share available
to common stockholders................... $ (1.27) $ (5.96)
======= ========
Basic and diluted weighted average shares
used in computation of net loss per share
available to common stockholders......... 4,561 4,885
======= ========
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results could differ materially from those
discussed in this prospectus. Factors that could cause or contribute to these
differences include, but are not limited to, the risks discussed in the section
entitled "Risk Factors" in this prospectus.
Overview
We are a leading Internet retailer focused exclusively on sporting goods. We
currently offer an extensive selection of competitively priced sporting goods
consisting of up to 60,000 distinct stock keeping units representing more than
500 brands in all major sports categories.
We were incorporated in October 1994. From our inception through July 1998,
we were engaged in providing web development and design services to sporting
goods manufacturers, trade associations, retailers and other industry members.
In July 1997, we launched a web site, "SportSite.com," and established
partnerships with sporting goods catalog and distribution companies to process
orders, manage inventory and ship goods directly to customers. In the third
quarter of 1998, we phased out the design services portion of our business to
focus exclusively on online retail. In November 1998, we changed our name to
Fogdog, Inc. and the name of our web site to "fogdog.com."
We derive our revenue from the sale of sporting goods from our web site.
Merchandise revenue is recognized when goods are shipped to our customers from
manufacturers, distributors or third-party warehouses, which occurs only after
credit card authorization. For sales of merchandise, we are responsible for
pricing, processing and fulfilling the orders. We process merchandise returns
and bear the credit risk for these transactions. We generally allow returns for
any reason within 45 days of the sale. Accordingly, we provide for allowances
for estimated future returns at the time of shipment based on historical data.
Historically, our rate of product returns has ranged between 8% and 10% of
total revenues, but our future return rates could differ significantly from our
historical averages. Currently, less than 15% of our transactions are shipped
from inventory held at third-party warehouses. We expect this percentage to
increase in future periods.
From October 1994 through March 1999, we derived revenue from commissions.
Our commission revenue was earned from transactions processed through our
online stores, fogdog.com and SportSite.com, whereby we obtained and processed
customer orders in exchange for a commission on the sale of the vendor's
merchandise. At the conclusion of the sale, we forwarded the order information
to the vendor, which then charged the customer's credit card and shipped the
merchandise directly to the customer. We recognized commission revenue when we
forwarded the order to the vendor. In a commission sale transaction, we did not
take title or possession of the merchandise, and the vendor bore all the risk
of credit card chargebacks and merchandise returns. When we launched our
fogdog.com web site in November 1998, we began to take title to our own
merchandise and also to bear customer credit and return risk on a substantial
number of our transactions. In April 1999, we began to take title to the
merchandise on all transactions processed on our web site. We have also earned
commission revenue from transactions processed on several client sites, which
has been immaterial to date.
From October 1994 to July 1998, we also earned revenue from web development.
Revenue from the sale of web development services was recognized when we had
the right to invoice the customer, the collection of the receivable was
probable, there were no significant obligations remaining and the client's web
site was either placed on-line or completed to the client's satisfaction. We
terminated our web development services in July 1998, and transitioned our
remaining support obligations to a third party.
29
<PAGE>
We have incurred substantial costs to develop our web site and to recruit,
train and compensate personnel for our creative, engineering, sales, marketing,
merchandising, customer service and administration departments. As a result, we
have incurred substantial losses since inception and, as of September 30, 1999,
had an accumulated deficit of $20.9 million. In order to expand our business,
we intend to invest heavily in sales, marketing, merchandising, operations,
site development and additional personnel to support these activities. We
therefore expect to continue to incur substantial operating losses for the
foreseeable future.
We had 96 full-time employees as of September 30, 1999 and intend to hire a
significant number of employees in the future. This expansion will place
significant demands on our management and our operational resources. To manage
this rapid growth, we must invest in and implement operational systems,
procedures and controls that can be expanded easily. We expect future expansion
to continue to challenge our ability to hire, train, manage and retain
employees.
In September 1999, we purchased Sports Universe, Inc., and Sports Universe
became our wholly owned subsidiary. Sports Universe derives its revenue
primarily from the sales of sporting goods from its web site,
"sportsuniverse.com." Sports Universe is a Delaware corporation that is based
in Austin, Texas and has fewer than 10 full-time employees. In the merger, we
exchanged 266,665 shares of our common stock for all outstanding shares of
Sports Universe capital stock. The transaction was accounted for using the
purchase method. We have recorded goodwill of approximately $2.6 million, which
will be amortized over a two-year period, in connection with the merger.
Results of Operations
The following table presents selected financial data for the periods
indicated as a percentage of total net revenues.
<TABLE>
<CAPTION>
Nine
Months
Ended
Year Ended September
December 31, 30,
------------------ -----------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues:
Merchandise............................... --% --% 25% --% 99 %
Commission................................ -- 1 16 13 1
Web development........................... 100 99 59 87 --
--- ---- ---- ---- ----
Total net revenues...................... 100 100 100 100 100
--- ---- ---- ---- ----
Cost of revenues:
Merchandise............................... -- -- 21 -- 80
Commission................................ -- -- 2 2 --
Web development........................... 13 15 13 19 --
--- ---- ---- ---- ----
Total cost of revenues.................. 13 15 36 22 80
--- ---- ---- ---- ----
Gross profit................................ 87 85 64 78 20
--- ---- ---- ---- ----
Operating expenses:
Marketing and sales....................... 101 123 314 193 419
Site development.......................... 18 25 172 143 86
General and administrative................ 37 36 92 89 46
Amortization of intangible assets......... -- -- -- -- 6
Amortization of stock-based compensation.. -- -- 32 24 61
--- ---- ---- ---- ----
Total operating expenses................ 156 184 610 449 618
--- ---- ---- ---- ----
Operating loss.............................. (69) (99) (546) (371) (598)
Interest income (expense), net.............. -- (1) 4 -- 11
Other income................................ -- -- 3 5 --
--- ---- ---- ---- ----
Net loss................................. (69)% (100)% (539)% (366)% (587)%
=== ==== ==== ==== ====
</TABLE>
30
<PAGE>
Nine Months Ended September 30, 1998 and 1999
Net Revenues
We had no merchandise revenue for the nine months ended September 30, 1998
and $2.5 million for the nine months ended September 30, 1999. Our merchandise
revenue resulted from customer transactions on our fogdog.com web site. In
November 1998, we began taking title to our own merchandise and bearing the
credit risk on an increasing number of transactions. Revenue from merchandise
shipped outside the United States was approximately 9% of total merchandise
revenue for the nine months ended September 30, 1999.
Commission revenue was $69,000 for the nine months ended September 30, 1998
and $35,000 for the nine months ended September 30, 1999. The decrease in
commission revenue was due to the elimination of commission transactions in
March 1999.
Web development revenue was $447,000 for the nine months ended September 30,
1998, and we had no web development revenue for the nine months ended September
30, 1999. We terminated our web development services in July 1998.
Cost of Revenues
Cost of merchandise revenue consists of product, shipping and handling
costs, and credit card processing fees. We incurred no cost of merchandise
revenue for the nine months ended September 30, 1998, and cost of merchandise
revenue was $2.1 million for the nine months ended September 30, 1999. As a
percentage of merchandise revenue, cost of merchandise revenue was 81% for the
nine months ended September 30, 1999. We began to incur cost of merchandise
revenue as we began taking title to our own merchandise and bearing customer
credit risk.
Cost of web development revenue consists of third-party fees and salaries
and related costs for site development and maintenance on behalf of clients.
Cost of web development revenue was $99,000 for the nine months ended September
30, 1998, and we had no cost of web development revenue for the nine months
ended September 30, 1999. The decrease in the cost of web development revenue
in dollars was due to the elimination of our hosting and maintenance activity.
Gross Profit
Gross profit was $405,000 for the nine months ended September 30, 1998 and
$507,000 for the nine months ended September 30, 1999. As a percentage of total
net revenues, gross profit was 78% for the nine months ended September 30, 1998
and 20% for the nine months ended September 30, 1999. The decrease in gross
profit in dollars and as a percentage of total net revenues was due to the
shift in our revenue from web development services to the sale of merchandise
on our web site.
Marketing and Sales Expenses
Our marketing and sales expenses consist primarily of advertising and
promotional expenditures, distribution facility expenses, including equipment
and supplies, credit card verification fees and payroll and related expenses
for personnel engaged in marketing, merchandising, customer service and
distribution activities. Marketing and sales expenses were $997,000 for the
nine months ended September 30, 1998 and $10.8 million for the nine months
ended September 30, 1999. As a percentage of net revenues, marketing and sales
expenses were 193% for the nine months ended September 30, 1998 and 419% for
the nine months ended September 30, 1999. The increase in marketing and sales
expenses in dollars and as a percentage of net revenues was attributable to an
increase in advertising and merchandising, customer service, distribution, and
marketing personnel and related costs as we continued to expand our online
store and establish the Fogdog brand. In September 1999, we entered into an
agreement with Nike USA, Inc. to distribute Nike products on our web site. In
connection with this agreement, we granted Nike a warrant to purchase 4,114,349
shares of our
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<PAGE>
common stock at an exercise price of $1.54 per share. Our sales and marketing
expenses in each quarter over the two-year term of the agreement will include a
portion of the warrant's estimated fair value of approximately $28.8 million,
calculated on a straight-line basis. We expect to continue to substantially
increase our marketing and promotional efforts and hire additional marketing,
merchandising, customer service and operations personnel. For the nine months
ended September 30, 1999 we amortized $463,000 of expense related to the Nike
warrant.
Site Development Expenses
Our site development expenses consist of payroll and related expenses for
web site development and information technology personnel, Internet access,
hosting charges and logistics engineering, and web content and design expenses.
Site development expenses were $737,000 for the nine months ended September 30,
1998 and $2.2 million for the nine months ended September 30, 1999. As a
percentage of net revenues, site development expenses were 143% for the nine
months ended September 30, 1998 and 86% for the nine months ended September 30,
1999. The increase in site development expenses in dollars was due to the
introduction and enhancement of our fogdog.com web site in November 1998 and
subsequent enhancements. We expect to continue to make substantial investments
in site development and anticipate that site development expenses will continue
to increase.
General and Administrative Expenses
General and administrative expenses consist of payroll and related expenses
for executive and administrative personnel, facilities expenses, professional
service expenses and other general corporate expenses. General and
administrative expenses were $457,000 for the six months ended June 30, 1998
and $1.2 million for the nine months ended September 30, 1999. As a percentage
of net revenues, general and administrative expenses were 89% for the nine
months ended September 30, 1998 and 46% for the nine months ended September 30,
1999. The increase in general and administrative expenses in dollars was due to
increased personnel and related costs to support the implementation of our
business strategy. The decrease in general and administrative expenses as a
percentage of net revenues was due to the growth in merchandise revenue without
a proportionate increase in general and administrative expenses. We expect that
general and administrative expenses will increase substantially as we add
personnel and incur additional costs related to the anticipated growth of our
business and operation as a public company.
Amortization of Stock-Based Compensation
In connection with the grant of employee stock options, we recorded
aggregate unearned stock-based compensation of $12.1 million through September
30, 1999. Employee stock-based compensation expense is amortized over the
vesting period of the options, which is generally four years, using the
multiple-option approach. We expect to record additional unearned stock-based
compensation of approximately $503,000 for stock options granted in October and
November 1999. We expect to record employee stock-based compensation expenses
of approximately $1.6 million for the quarter ending December 31, 1999, $1.5
million for the quarter ending March 31, 2000 and $1.5 million for the quarter
ending June 30, 2000. We anticipate this expense to decrease in future periods.
Unearned stock-based compensation expense will be reduced in future periods to
the extent that options are terminated prior to full vesting.
Interest Income (Expense), Net
Interest income (expense), net consists of interest earned on cash and
short-term investments, offset by interest expense related to bank borrowings
and other financing lines. Interest income (expense), net was $2,000 for the
nine months ended September 30, 1998 and $276,000 for the nine months ended
September 30, 1999. The increase in interest income was due to higher average
cash balances from additional sales of preferred stock completed in the first
three quarters of 1999.
Other Income
Other income consists of the proceeds we received when we transitioned our
remaining web development service obligations to a third-party, which was
completed in the third quarter of 1998.
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<PAGE>
Years Ended December 31, 1996, 1997 and 1998
Net Revenues
We had no merchandise revenue for the years ended December 31, 1996 and
1997, and merchandise revenue of $195,000 for the year ended December 31, 1998.
Our merchandise revenue resulted from customer transactions on our fogdog.com
web site. In November 1998, we began taking title to our own merchandise and
bearing the credit risk on an increasing number of transactions. Our
merchandise revenue increased due to an increase in the number of merchandise
transactions processed on our web site. Revenue from merchandise shipped
outside the United States was approximately 6% of total merchandise revenue for
the year ended December 31, 1998.
We had no commission revenue for the year ended December 31, 1996.
Commission revenue was $11,000 and $123,000 for the years ended December 31,
1997 and 1998, respectively. This increase in commission revenue was due to an
increased number of commission transactions processed on our web site.
Web development revenue was $677,000, $1.0 million and $447,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. The increase in web
development revenue from 1996 to 1997 was due to an increase in the number of
development contracts that we signed. The decrease in web development revenue
from 1997 to 1998 occurred as we shifted our focus from being a web development
services provider to an online retailer.
Cost of Revenues
We had no cost of merchandise revenue for the years ended December 31, 1996
and 1997, and cost of merchandise revenue was $157,000 or 81% of merchandise
revenue for the year ended December 31, 1998. We began to incur cost of
merchandise revenue as we began to take title to the merchandise and bear the
credit risk prior to delivery to the customer.
Cost of commission revenue consists of the value of services rendered and
fees paid to trade associations. We had no cost of commission revenue for the
years ended December 31, 1996 and 1997, and cost of commission revenue was
$19,000 or 15% of commission revenue for the year ended December 31, 1998. We
had no commission revenue in 1996. We had no cost of commission revenue for
1997 because all commission revenue in 1997 was derived from third-party web
sites for which we incurred no verification fees.
Cost of web development revenue was $90,000, $156,000 and $99,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of
web development revenue, cost of web development revenue was 13%, 15% and 22%
for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase in the cost of web development revenue in dollars and as a percentage
of web development revenue from 1996 to 1997 was attributable to an increase in
our hosting and maintenance activity for which we incurred initial start-up
costs. The decrease in the cost of web development revenue in dollars and as a
percentage of web development revenue from 1997 to 1998 was due to a reduction
of our hosting and maintenance activity as we shifted our focus from being a
web development services provider to an online retailer.
Gross Profit
Gross profit was $587,000, $885,000 and $490,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. As a percentage of total net
revenues, gross profit was 87%, 85% and 64% for the years ended December 31,
1996, 1997 and 1998, respectively. The increase in gross profit from 1996 to
1997 was due to an increase in web development revenue. The decrease in gross
profit in dollars and as a percentage of total net revenues from 1997 to 1998
was due to the shift in our revenue from web development to the sale of
merchandise.
Marketing and Sales Expenses
Marketing and sales expenses were $686,000, $1.3 million and $2.4 million
for the years ended December 31, 1996, 1997 and 1998, respectively. As a
percentage of net revenues, marketing and sales expenses were 101%, 123% and
314% for the years ended December 31, 1996, 1997 and 1998, respectively.
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<PAGE>
The increase in dollars and as a percentage of net revenues from 1996 to 1997
was attributable to an increase in personnel and related costs required to
implement our sales and marketing strategy. The increase in marketing and sales
expenses in dollars and as a percentage of net revenues from 1997 to 1998 was
attributable to an increase in advertising and merchandising, customer service,
distribution, and marketing personnel and related costs.
Site Development Expenses
Site development expenses were $119,000, $259,000 and $1.3 million for the
years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of
net revenues, site development expenses were 18%, 25% and 172% for the years
ended December 31, 1996, 1997 and 1998, respectively. The increase in site
development expenses in dollars and as a percentage of net revenues from 1996
to 1997 was due to the introduction and enhancement of the SportSite.com web
site and subsequent enhancements. The increase in dollars and as a percentage
of net revenues from 1997 to 1998 was due to the introduction and enhancement
of our fogdog.com web site and the development of technologies for integrating
with our suppliers.
General and Administrative Expenses
General and administrative expenses were $248,000, $378,000 and $705,000 for
the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage
of net revenues, general and administrative expenses were 37%, 36% and 92% for
the years ended December 31, 1996, 1997 and 1998, respectively. The increase in
general and administrative expenses in dollars and as a percentage of net
revenues was due to increased personnel and related costs to support the
implementation of our business strategy.
Amortization of Stock-Based Compensation
In connection with the grant of employee stock options, we recorded
aggregate unearned stock-based compensation of $1.2 million for the year ended
December 31, 1998 which is being amortized over a four-year vesting period
using the multiple-option approach.
Interest Income (Expense), Net
Interest income (expense), net was $(3,000), $(8,000) and $29,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. The increase in
interest income (expense), net was due to higher average cash balances from
additional sales of securities completed in the second quarter of 1998.
Other Income
Other income consists of the proceeds we received when we transitioned our
remaining web development service obligations to a third-party, which was
completed in the third quarter of 1998.
Provision for Income Taxes
We have incurred operating losses for all periods from inception through
June 30, 1999, and therefore have not recorded a provision for income taxes.
Our deferred tax asset primarily consists of net operating loss carryforwards
and nondeductible accruals and allowances. We have recorded a valuation
allowance for the full amount of our net deferred tax assets, as the future
realization of the tax benefit is not currently likely.
As of December 31, 1998, we had net operating loss carryforwards for federal
and state tax purposes of approximately $4.3 million and $4.7 million,
respectively. These federal and state tax loss carryforwards are available to
reduce future taxable income and expire at various dates into the year 2019. We
expect that the amount of net operating loss carryforwards that could be
utilized annually in the future to offset taxable income will be limited by
"change in ownership" provisions of the Internal Revenue Code. This annual
limitation may result in the expiration of net operating loss carryforwards
before their utilization.
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<PAGE>
Quarterly Results of Operations and Seasonality
The following tables set forth a summary of our unaudited quarterly
operating results for each of the seven quarters in the period ended September
30, 1999. This information has been derived from our unaudited financial
statements which, in management's opinion, have been prepared on a basis
consistent with the audited financial statements contained elsewhere in this
prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of this information when read in
conjunction with our audited financial statements and related notes. The amount
and timing of our operating expenses generally will vary from quarter to
quarter depending on our level of actual and anticipated business activities.
Our revenue and operating results are difficult to forecast and will fluctuate,
and we believe that period-to-period comparisons of our operating results will
not necessarily be meaningful. As a result, you should not rely upon them as an
indication of future performance.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
Statement of Operations
Data: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Merchandise............... $ -- $ -- $ -- $ 195 $ 318 $ 731 $ 1,493
Commission................ 11 26 32 54 35 -- --
Web development........... 206 122 119 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Total net revenues...... 217 148 151 249 353 731 1,493
------ ------ ------ -------- -------- -------- -------
Cost of revenues:
Merchandise............... -- -- -- 157 232 589 1,249
Commission................ -- -- 12 7 -- -- --
Web development........... 62 25 12 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Total cost of revenues.. 62 25 24 164 232 589 1,249
------ ------ ------ -------- -------- -------- -------
Gross profit................ 155 123 127 85 121 142 244
------ ------ ------ -------- -------- -------- -------
Operating expenses:
Marketing and sales....... 192 257 548 1,402 1,536 2,809 6,462
Site development.......... 185 224 328 581 482 726 997
General and
administrative........... 131 158 168 248 304 448 429
Amortization of intangible
assets .................. -- -- -- -- 12 12 120
Amortization of stock-
based compensation....... -- 23 102 118 331 409 842
------ ------ ------ -------- -------- -------- -------
Total operating
expenses............... 508 662 1,146 2,349 2,665 4,404 8,850
------ ------ ------ -------- -------- -------- -------
Operating loss.............. (353) (539) (1,019) (2,264) (2,544) (4,262) (8,606)
------ ------ ------ -------- -------- -------- -------
Interest income (expense),
net........................ (11) (13) 26 27 22 136 118
Other income................ -- -- 26 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Net loss.................... $(364) $(552) $(967) $(2,237) $(2,522) $(4,126) $(8,488)
====== ====== ====== ======== ======== ======== =======
<CAPTION>
As a Percentage of Total Net
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Merchandise............... --% --% --% 78% 90% 100% 100%
Commission................ 5 18 21 22 10 -- --
Web development........... 95 82 79 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Total net revenues...... 100 100 100 100 100 100 100
------ ------ ------ -------- -------- -------- -------
Cost of revenues:
Merchandise............... -- -- -- 63 66 81 84
Commission................ -- -- 8 3 -- -- --
Web development........... 29 17 8 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Total cost of revenues.. 29 17 16 66 66 81 84
------ ------ ------ -------- -------- -------- -------
Gross profit................ 71 83 84 34 34 19 16
------ ------ ------ -------- -------- -------- -------
Operating expenses:
Marketing and sales....... 89 173 363 563 435 384 433
Site development.......... 85 151 217 233 137 99 67
General and
administrative........... 60 107 110 100 86 61 29
Amortization of intangible
assets................... -- -- -- -- 3 2 8
Amortization of stock-
based compensation....... -- 16 68 47 94 56 56
------ ------ ------ -------- -------- -------- -------
Total operating
expenses............... 234 447 759 943 755 602 593
------ ------ ------ -------- -------- -------- -------
Operating loss.............. (163) (364) (675) (909) (721) (583) (576)
------ ------ ------ -------- -------- -------- -------
Interest income (expense),
net........................ (5) (9) 17 11 6 19 8
Other income................ -- -- 17 -- -- -- --
------ ------ ------ -------- -------- -------- -------
Net loss.................... (168)% (373)% (640)% (898)% (715)% (564)% (569)%
====== ====== ====== ======== ======== ======== =======
</TABLE>
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<PAGE>
Commencing with the launch of our fogdog.com web site in November 1998, our
merchandise revenue has increased during each quarter. These increases resulted
from growth in the number of customers and products available for sale on our
web site.
Cost of merchandise revenue increased from the fourth quarter of 1998
through the third quarter of 1999 as we increased merchandise sales. Our cost
of merchandise revenue as a percentage of net revenues increased from the
fourth quarter of 1998 to the first through third quarters of 1999 due to
increased shipping and handling costs.
Marketing and sales expenses increased each quarter from the first quarter
of 1998 through the third quarter of 1999 as we began online and offline
advertising and as we launched the fogdog.com web site in the fourth quarter of
1998. We also increased personnel and related expenses required to implement
our marketing and sales strategy. Site development expenses increased each
quarter from the first quarter of 1998 through the fourth quarter of 1998 as we
began enhancing our web site to accommodate the increased transaction volume
and product offerings for the holiday season. After completion of the launch of
our fogdog.com web site in the fourth quarter of 1998, site development
expenses decreased from the fourth quarter of 1998 to the first quarter of 1999
as we did not have any launch related expenses. Site development expenses
increased from the first quarter of 1999 through the third quarter of 1999 as
we increased spending on design and content to develop additional specialty
shops. General and administrative expenses increased each quarter from the
first quarter of 1998 through the third quarter of 1999 as we increased
personnel and related expenses to support our new business strategy.
We expect our business to be highly seasonal, reflecting the general pattern
associated with the retail industry of peak sales and earnings during the
fourth quarter. We believe that a substantial portion of our annual sales will
occur in the fourth quarter. We expect to experience lower sales during the
other quarters, and as is typical in the retail industry, have incurred and may
continue to incur greater losses in these quarters. See "Risk Factors--Seasonal
fluctuations in the sales of sporting goods could cause wide fluctuations in
our quarterly results."
Results of Operations--Sports Universe
We acquired Sports Universe, Inc. in September 1999. Since its inception in
February 1998, Sports Universe has incurred operating losses. During the six
months ended June 30, 1999, Sports Universe recorded revenue of approximately
$262,000 from the sale of merchandise on its web site and from web design
services, and incurred a net loss of $63,000. During the six months ended June
30, 1999, Sports Universe incurred total operating expenses of approximately
$170,000, which consisted primarily of personnel and related costs for
marketing, sales and administrative staff. At June 30, 1999, Sports Universe
had negative working capital of $571,000 and an accumulated deficit of
$549,000.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from private
sales of convertible preferred stock totaling $38.8 million and, to a lesser
extent, from bank borrowings and lease financing.
Our operating activities used cash of $399,000 during 1996, $915,000 during
1997, $3.0 million during 1998 and $11.8 million during the first nine months
of 1999. This negative operating cash flow resulted primarily from our net
losses experienced during these periods. In 1998 and 1999, we invested in the
development of our brand and online store, hired additional personnel and
expanded our technology infrastructure to support our growth.
Our investing activities, consisting of purchases of furniture, fixtures and
computer equipment to support our growing number of employees, used cash of
$137,000 during 1996, $81,000 during 1997, $692,000 during 1998 and $970,000
during the first nine months of 1999.
36
<PAGE>
Our financing activities generated cash of $971,000 during 1996, $836,000
during 1997, $5.0 million during 1998 and $32.9 million during the first nine
months of 1999. Of these financing activities, the issuance of convertible
preferred stock generated net proceeds of $945,000 during 1996, $528,000 during
1997, $4.5 million during 1998 and $32.5 million for the nine months ended
September 30, 1999. We also had proceeds from bank borrowings of $452,000 in
1998.
At September 30, 1999, we had cash and cash equivalents and short-term
investments aggregating $21.9 million. Our short-term investments secure a
letter of credit issued in connection with the lease of our corporate offices.
We have an agreement with a bank, which provides us with the ability to borrow
up to $1.0 million, subject to specified limitations. The agreement provides
for the following:
. an equipment loan for $800,000, payable in 24 equal installments
commencing October 15, 1999, limited to 75% of the invoice amount of the
equipment; and
. an equipment term loan for $150,000 payable in 24 equal installments
commencing January 28, 1999.
We had an outstanding aggregate balance at September 30, 1999 of $877,000.
Interest on the borrowings range from the prime rate plus one-half percent to
the prime rate plus one percent and is payable monthly. We must meet financial
covenants with respect to the borrowings, which we were in compliance with at
September 30, 1999.
We also have an agreement with a software company to purchase software under
a one-year loan agreement which bears interest at 7.5%. The principal and
interest is payable in 12 equal monthly installments beginning in October 1998.
We had an outstanding balance at September 30, 1999 of $19,000.
During 1999, we entered into a number of commitments for online and
traditional offline advertising. As of September 30, 1999, our remaining
commitments were approximately $4.0 million. In addition, we have remaining
commitments under the lease for our headquarters of $4.8 million.
We expect to devote substantial resources to continue development of our
brand and online store, expand our sales, support, marketing and engineering
organizations, establish additional facilities worldwide and build the systems
necessary to support our growth. Although we believe that the proceeds of this
offering, together with our current cash and cash equivalents and our borrowing
capacity, will be sufficient to fund our activities for at least the next 12
months, there can be no assurance that we will not require additional financing
within this time frame or that additional funding, if needed, will be available
on terms acceptable to us or at all. In addition, although there are no present
understandings, commitments or agreements with respect to any acquisition of
other businesses, products or technologies, we may, from time to time, evaluate
potential acquisitions of other businesses, products and technologies. In order
to consummate potential acquisitions, we may issue additional securities or
need additional equity or debt financing and these financings may be dilutive
to existing investors.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirements to capitalize specified costs and
amortization of such costs. The adoption of the provisions of SOP 98-1 during
our fiscal year beginning January 1, 1999 did not have a material effect on our
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133
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<PAGE>
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
other hedging activities. SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 1999. In July 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133." SFAS 137 deferred the effective date until the first fiscal
quarter ending June 30, 2000. We will adopt SFAS 133 in our quarter ending June
30, 2000. We do not currently engage in hedging activities or invest in
derivative instruments.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
In the second quarter of 1999, we initiated a Year 2000 compliance program.
The program is being directed by our information technology group. Our IT group
is charged with identifying issues of potential risk within each department and
making the appropriate evaluation, modification, upgrade or replacement.
Members of our IT group have worked with members of each of our principal
internal divisions in the course of assessing our Year 2000 compliance.
Scope of Year 2000 Assessment
The scope of our Year 2000 compliance program included testing our web site
and the IT and non-IT systems used in our business at our headquarters and at
our third-party warehouses. The operational areas that we investigated include:
. software applications;
. facilities;
. suppliers and vendors, including distributors; and
. computer systems.
We do not currently have information concerning the Year 2000 compliance
status of all of our vendors and distributors. If our suppliers, distributors
and manufacturers fail to achieve Year 2000 compliance, our business could
suffer.
Budget and Schedule
We have funded our Year 2000 plan from available cash and have not
separately accounted for these expenses in the past. As a result of our short
operating history, we believe that most of our third-party systems were
purchased in Year 2000 compliant condition. To date, expenditures for Year 2000
compliance have not been material and have totaled less than $150,000. Most of
our expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. We expect to incur no more
than an additional $100,000 to verify that our IT and non-IT systems are
capable of properly distinguishing between 20th century and 21st century dates.
However, we may experience unanticipated, material problems and expenses
associated with Year 2000 compliance that could harm our business. Finally, we
are also subject to external forces that might generally affect industry and
commerce, such as Year 2000 compliance failures by utility or transportation
companies and related service interruptions.
38
<PAGE>
We have not yet completed the evaluation of our web site and our third-party
software systems. We are in the process of obtaining Year 2000 assurances from
our principal third-party hardware vendors and service providers, and
installing Year 2000 "patch kits", where appropriate. We anticipate concluding
these activities by the end of November 1999.
Internal Third-Party Hardware and Software Systems and Services
We have evaluated all of our material internal third-party hardware and
software systems we use on our web site and in our business. We have received
written assurances of Year 2000 compliance from substantially all of the
providers of hardware used in our business. We have identified approximately 20
different software vendors that provide software products for our web site and
in our business. We have received adequate assurances of Year 2000 compliance
from substantially all of our software vendors. We have determined that the
current version of our server software is not Year 2000 compliant and are
upgrading it to a Year 2000 compliant version, which we expect to complete by
the end of November 1999. If any of the assurances we have received from our
third-party software or hardware providers are false, our internal systems and
our ability to ship our product would be materially harmed.
We have also obtained assurances as to Year 2000 compliance from our hosting
service provider and we are in the process of obtaining written assurances from
our other third-party service providers. We expect to receive assurances from
such entities without additional expenditures by us.
We have made written inquiry of all of our current vendors and distributors
and 67% of these entities responded to our request. Of those entities all but
one vendor and one fulfillment partner have provided us with written assurances
as to Year 2000 compliance. We are working with the remaining vendor, an
equipment supplier in one of our sports categories, and fulfillment partner to
assess how their possible failure to be Year 2000 compliant will affect our
business. We are attempting to obtain Year 2000 compliance assurance from the
vendors and distributors that did not respond to our request. We cannot assure
you that we will obtain Year 2000 assurances from these entities, and if they
do not upgrade their systems for Year 2000 compliance, our ability to ship
products would be materially impaired.
Contingency Plan
We expect our compliance program to be substantially completed by the end of
November 1999. If we encounter delays or are unable to meet this schedule, we
will engage in testing and re-testing of non-compliant areas and develop a back
up plan which we would expect to complete by December 1999.
We may discover Year 2000 compliance problems in our systems that will
require substantial revision. In addition, third-party software, hardware or
services incorporated into our business or used in our web site may need to be
revised or replaced, all of which could be time-consuming and expensive and
result in the following, any of which could adversely affect our business:
. delay or loss of revenue;
. diversion of development and information technology resources;
. damage to our reputation; and
. litigation costs.
Our failure to fix or replace our third-party software, hardware or services on
a timely basis could result in lost revenues, increased operating costs, the
loss of customers and other business interruptions.
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Quantitative and Qualitative Disclosure About Market Risk
We currently market our merchandise in the United States and anticipate
expanding our marketing efforts in Europe in late 1999 and throughout 2000. As
a result, our financial results could be affected by factors including changes
in foreign currency exchange rates or weak economic conditions in foreign
markets. As all sales are currently made in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore, no quantitative tabular
disclosures are required.
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BUSINESS
Fogdog Sports is a leading online retailer of sporting goods. We have
designed fogdog.com, our online store, to offer an extensive product selection,
detailed product information and other value-added services. We believe that we
offer the largest selection of sporting goods online, with up to 60,000
distinct stock keeping units representing more than 500 brands in all major
sports categories. According to Media Metrix, Inc., our web site received more
visits during September 1999 than any other online retailer focusing
exclusively on sporting goods. Fogdog.com features a collection of specialty
shops, including soccer, baseball, golf, outdoors, fan/memorabilia and other
popular categories, organized to appeal to a broad base of customers from the
avid enthusiast to the occasional participant. We provide information and
analysis authored by our own experts, helpful shopping services, innovative
merchandising and an emphasis on customer service to help customers make more
educated purchasing decisions. We offer customers the convenience and
flexibility of shopping 24 hours a day, seven days a week, which makes
fogdog.com the "anytime, anywhere, sports store." We intend to establish Fogdog
as the first global brand for retail sporting goods, and in the process build
consumer trust, confidence and loyalty.
Industry Overview
Electronic Commerce. The Internet is an increasingly significant medium for
communication, information exchange and commerce. Forrester Research estimates
that online purchases by U.S. consumers will grow from approximately $20
billion in 1999 to $184 billion by 2004, representing a compound annual growth
rate of 56%. International Data Corporation estimates that the number of total
online purchasers will grow from approximately 31 million in 1998 to 183
million in 2003, representing a compound annual growth rate of 43%. Forrester
Research projects that U.S. consumers will purchase $4.2 billion of sporting
goods online in 2004. We believe that growth in Internet usage is being fueled
primarily by easier and cheaper access to the Internet and improvements in
network security, infrastructure and bandwidth. We believe that these trends
are also helping to fuel the growth and consumer acceptance of online commerce.
The Internet provides a number of advantages for online retailers. Because
online retailers are not constrained by shelf space or catalog page
limitations, they are able to "display" a larger number of products at a lower
cost than traditional store-based or catalog retailers. In addition, online
retailers can more easily and frequently adjust their featured selections,
editorial content and pricing, providing significant merchandising flexibility.
Online retailers also benefit from the ability to reach a large group of
customers from a central location, and the potential for low-cost customer
interaction. Unlike traditional retail channels, online retailers do not have
the burdensome costs of managing and maintaining a retail store infrastructure
or the significant printing and mailing costs of catalogs. Online retailers
also can more easily obtain demographic and behavioral data about customers,
increasing their opportunities for targeted marketing and personalized
services.
Traditional Sporting Goods Industry. We believe that the sporting goods
industry, which includes apparel, equipment and athletic footwear, is large and
growing. According to the Sports Business Research Network, total U.S. retail
sales of sporting goods were approximately $77 billion in 1998 and have grown
at a 6.8% compound annual rate since 1994. Additionally, according to Sports
Trend, a trade publication, in 1998 the top five U.S.-based sporting goods
specialty retailers, excluding mass merchandisers, accounted for only $6.6
billion of total industry sales, demonstrating the highly fragmented nature of
the sporting goods retail market. According to the Sporting Goods Manufacturers
Association, the number of people who actively participate in sports, fitness
and outdoor activities grew 19% from 68.5 million in 1987 to 81.6 million in
1996. We believe that the sporting goods industry will continue to benefit from
the continued growth in participation and interest in sports, recreation,
health, fitness and outdoor activities.
Limitations of the Traditional Sporting Goods Retail Channel. The
traditional sporting goods retail channel is fragmented, including mass
merchant retailers and discount stores, regional or national chain stores,
local specialty shops and mail order catalogers. Mass merchant retailers and
discount stores often offer
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attractive pricing. However, they typically offer only a limited selection of
each brand's products and lack trained, knowledgeable sales people. Local and
regional chain stores often have a broader line of branded products, but lack
extensive product knowledge at the individual store level. Specialty stores
such as golf and ski shops may offer better customer service, but with higher
prices and a narrower selection. Mail order catalogers typically focus on one
sport category, and are limited by catalog space constraints in offering either
extensive selection or in-depth product information. As a result of these
factors, we believe that the traditional retail channel for sporting goods
fails to satisfy fully consumers' desire for selection, product information,
expert advice, personalized service and convenience.
We believe that, in addition to failing to fully satisfy the needs of the
customer, the traditional sporting goods retail channel presents significant
limitations for manufacturers. Traditional sporting goods retailers often do
not provide manufacturers global distribution or proper and consistent brand
merchandising and allow discounts below minimum advertised price policy. In
addition, traditional sporting goods retailers cannot offer manufacturers
unlimited shelf space, full product line presentation with high-quality product
information and extensive customer service with knowledgeable salespersons.
Similarly, traditional retailers offer manufacturers limited flexibility in how
a product is sold and presented directly to the consumer.
Taken together, we believe that these factors serve to make the traditional
retail sporting goods experience inefficient and inconvenient for both
customers and manufacturers.
The Fogdog Sports Solution
We have designed our online store to offer an extensive product selection,
detailed product information and other value-added services to address the
limitations of the traditional sporting goods retail channel for customers and
manufacturers. With up to 60,000 distinct stock keeping units representing more
than 500 brands, we believe we offer a broader product selection and more
sporting goods categories than many of the largest, brick and mortar retailers.
Our online store is designed to provide customers with a convenient and
enjoyable shopping experience through a collection of specialty shops for
popular sporting goods categories. Our exclusive focus on sporting goods and
commitment to excellent customer service enable us to effectively address the
needs and desires of our customers. In order to further deploy our solution, we
have entered into a strategic relationship with Nike which will allow us to
offer Nike's generally available product lines, present product information and
give us advance availability of mutually agreed upon, newly released Nike
products. The key components of our solution include:
Specialty Shops Featuring Extensive Product Selection. We offer a broad
range of product lines in a wide variety of sports in order to make Fogdog
Sports a "one-stop-shop." Most of our products, representing 30 different
sports, are featured in fourteen specialty shops and five brand concept shops.
This presentation gives manufacturers an opportunity to merchandise their
entire product lines and maintain brand identity and pricing. Our specialty
shops feature soccer, outdoor, baseball, golf, tennis and racquet sports,
football, hockey, fan/memorabilia and other categories and provide useful
information and expert advice to help customers make product selections. Each
shop offers equipment, apparel and accessories designed to appeal to avid
enthusiasts and occasional participants. For example, our soccer shop features
soccer cleats, protective equipment, balls, uniforms, shorts, tops, cross
training shoes, pants, tights, warm-ups, athletic tape, socks, equipment bags
and other goods. Because we believe that our customers tend to participate in
several sports, a positive shopping experience in one specialty shop may
encourage shopping in our other specialty shops.
Value-Added Shopping Services. We offer helpful services to assist our
customers with their purchasing decisions, including:
. Detailed Product Information, Guides and Comparison Charts. Fogdog.com
features extensive information on products, including product
descriptions, high-quality product pictures, technical specifications
and the intended product use descriptions. Our web site's technology
allows the user to zoom in on selected products to view construction,
materials and other product details. We recently added our "360 Info
Spin" feature to our web site, allowing consumers to zoom in on and spin
a product image to better understand its features and benefits. To
further aid consumers in finding the
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right product for their specific needs, our staff of experts writes
product guides which incorporate manufacturers' data and are intended to
help consumers learn about various product features, sizing and fit
information and other relevant information to know before purchasing.
Our experts research the products and summarize the information in easy-
to-read comparison charts.
. Brand Concept Shops. In addition to our specialty shops, we offer brand
shops devoted exclusively to selected high-end brands for customers
loyal to a particular brand. Created in conjunction with top brand
manufacturers, such as Callaway and Moving Comfort, these shops surround
the customer with in-depth information, broad selection and the "look
and feel" consistent with the manufacturers' product merchandising.
These shops are accessible from our home page and from our specialty
shops.
. Advice and Product Recommendations by Recognized Sports Experts. We
offer information to help customers select the right product for their
sports needs. We have a staff of world-class athletes, notable equipment
experts and recognized sports journalists who write product articles for
the site, respond to customer emails, answer customer service questions
and recommend products as "Fogdog Picks," chosen for their features and
value. We also host bulletin board sessions in which our expert staff
shares ideas with visitors to our web site.
. Consumer Reviews. To further enhance the site experience and to increase
involvement in our online sporting community, we encourage customers to
offer their personal reviews of any product available on the site. Our
customers review products on a five-star rating scale. We moderate the
reviews for appropriate language and user authenticity. To encourage
reviews, recent shoppers at fogdog.com receive a follow-up email
generally within three weeks after their purchase, which inquires about
the overall shopping experience and asks the customer to submit a review
of the purchased products. This email also serves as an opportunity for
cross selling of additional related products.
. My Fogdog. To provide a more personalized shopping experience, we have
developed an environment for registered users of the site known as "My
Fogdog." Every registered user of fogdog.com is greeted by name on the
home page and is offered a link into a customized area focusing on the
individual's product interests and buying history. This area includes
merchandised items that are specific to that individual's interests,
targeted promotions and links to our online order history and tracking
system which enables customers to check order status and reorder more
easily. Registered My Fogdog users are able to receive product offers
that are relevant to their sports preferences, check-out faster with
"Express Shopper" which stores shipping and credit card information,
gain access to special items and promotions and reorder items easily.
Convenient Shopping Experience. Our online store provides customers with an
easy-to-use web site. Fogdog.com is available 24 hours a day, seven days a
week and may be reached from the shopper's home or office. Our online store
enables us to deliver a broad selection of products to customers who do not
have convenient access to physical stores. Our "Power Search" technology
allows customers to locate products more efficiently based on user-defined
criteria such as shoe size, gender, product category and manufacturer.
Commitment to Excellent Customer Service. We emphasize customer service
during all phases of the customer's online shopping experience. Our staff
includes sports consultants who are hired for their broad knowledge of
athletics, sports products and training to assist customers in their
purchasing decisions. To ensure that our staff receives ongoing information on
product features and functionality, we offer training sessions sponsored by
key manufacturers. Our consultants, together with our in-house staff, provide
free pre- and post-sales support via both email and toll-free telephone
service during extended business hours. Once a customer places an order, that
customer can view order-tracking information on our web site or contact our
customer service department to obtain the status of the order and, when
necessary, resolve order and product questions. Furthermore, our web site
contains extensive information for first-time and repeat visitors, including
helpful hints in searching for, selecting, ordering and returning our
products. If the purchased product does not satisfy the customer, we offer an
unconditional, 45-day money-back return policy. If customers are unable to
find a product, they can submit a form asking the "Fogdog Search Squad" to
find it for them. The Fogdog Search
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Squad are members of our customer service staff who locate and ship hard-to-
find products for customers. This service addresses our customers' desire for a
single trusted source for sporting goods.
Network of Fulfillment Partners. We believe the Fogdog Sports solution
simplifies the order fulfillment process in the complex and highly fragmented
sporting goods industry. We have developed proprietary technologies and
implemented a fulfillment system that utilizes two third-party warehouses,
distributors, converted catalogers and direct shipping from select
manufacturers to support and secure reliable online retailing. We believe that
our distribution network provides us with competitive advantages in offering
our customers and partners an efficient and cost-effective order fulfillment
solution. The use of this network is transparent to the customer and allows us
to effectively manage the distribution process and deliver products to the
customer in Fogdog Sports packaging.
Growth Strategy
The Fogdog Sports vision is to reinvent the sporting goods industry by
providing customers with a new value proposition of selection, information and
service. Our goal is to be the world's leading sporting goods retailer. Key
elements of our growth strategy are to:
Build Brand Recognition. We intend to establish the Fogdog brand as the
first global brand for retail sporting goods and in the process build consumer
trust, confidence and loyalty. We believe that through a compelling shopping
experience and aggressive advertising and promotional activities, we can
continue to build awareness for Fogdog. We are targeting a broad base of
customers who are passionate about their sports, from the avid enthusiast to
the occasional participant. A compelling site experience reinforces the brand
promise that fogdog.com is the "ultimate sports store" and "your anytime,
anywhere sports store." We use a combination of traditional and online
marketing strategies to maximize our brand recognition:
. Television, Radio, Print and Outdoor Advertising. We intend to continue
to use a mix of traditional media to build awareness for the Fogdog
brand, relying primarily on cable and broadcast TV. We plan to focus our
TV advertising on high-profile, national cable and broadcast television
networks to associate Fogdog Sports with the active sporting lifestyle.
In addition, we intend to continue to use radio, print and outdoor
advertising to reach potential customers, particularly in markets with
high Internet use.
. Online Advertising. We intend to continue to establish relationships
with major online services and Internet shopping portals to target
active online sporting goods shoppers. For example, we have entered into
a marketing agreement with America Online, and we also have agreements
with WebTV Networks, Inc., GO Network, Snap.com and Women.com for
prominent positioning in their online shopping areas. We advertise on
these sites as well as sites of other major online portals, including
Excite, HotBot and MSN.com. We also advertise on Yahoo! with over 8,000
Fogdog products available through the Yahoo! shopping area. We intend to
continue to maintain high visibility on major web sites and portals.
. Affiliate Network. We have agreements with numerous web sites which we
refer to as "affiliates." Our goal is to make our affiliates program one
of the largest among major online retail web sites. Affiliates direct
traffic to our web site, and we offer affiliates a commission on
resulting sales. We intend to expand our affiliates program to continue
to draw customers to our web site.
. Promotions, Events and Sponsorships. We have a program of sponsoring
high profile, local sporting events, such as the Hi-Tec Adventure Racing
Series and the Escape from Alcatraz Triathlon. We intend to continue to
expand our sponsorship programs in order to build credibility with and
recognition by athletes.
Promote Repeat Purchases. We are focused on promoting customer loyalty and
building relationships with our customers to drive repeat sales. To accomplish
this strategy, we strive to provide quality customer service seven days per
week, ship products promptly and for a low cost and provide an easy-to-shop
online retail environment. We also employ technology which targets returning
customers and makes specific offers to
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them based on the customers' purchase history, sports preferences and shopping
behavior. We intend to continue to build features that will enhance loyalty,
provide offerings unique to each individual customer and continually strive to
enhance our customer service. In addition, we intend to expand our direct,
online marketing by delivering meaningful information and special offers to our
customers.
Expand Specialty Shops. We have created a collection of specialty shops
within our online store, and we intend to provide additional shops organized by
sport or brand. We anticipate adding five to ten of these specialty shops
during the next twelve months. We design these shops to be destination sites
for sports enthusiasts by including top branded products, extensive product
information and superior customer service. We intend to further enhance our
specialty shops by offering the best of a traditional offline specialty shop in
service and information along with the best product selection for all sports
across top brands.
Maximize Product Selection and Fulfillment Capabilities. We intend to employ
a three-part strategy so that we can sell and deliver the broadest possible
array of top branded products to our customers. We believe that our focus on
product availability and use of multiple fulfillment partners and channels will
enable us to increase our margins while serving a rapidly expanding customer
base. Our strategy is to:
. Expand Fulfillment Network. We plan to augment our network of partners
that manage inventory, shipping, warehousing and general purchasing, as
well as our relationships with manufacturers that ship directly to
customers. We believe the strength of our fulfillment network provides a
competitive advantage by increasing product availability without
exposing us to all of the inventory risk of a traditional retailer.
. Extend Brand Relationships. We currently buy products directly from
numerous sporting goods manufacturers with well-known consumer brands.
We intend to continue to develop relationships with top brand
manufacturers to secure the highest level of premium product inventory
available. We also plan to continuously improve our relationships and
the efficiency of our interactions with these key vendors by
incorporating brand and product information into our site, and by
featuring certain brands within brand concept shops. Our strategic
relationship with Nike will give us access to all Nike brands including
Jordan, Bauer, Nike ACG, Nike Golf and Nike Team Sports.
. Augment Distribution Technology and Expertise. We have developed a broad
range of technologies to integrate our web site and other systems
directly with the systems of our fulfillment partners. We plan to
leverage and expand our technical expertise to increase this
integration. We also have built and will continue to enhance a team
devoted to executing our warehousing, inventory management, buying and
merchandising activities to ensure superior product selection.
Enhance and Form Strategic Relationships. We have agreements with Nike,
America Online and Keystone Fulfillment. We intend to leverage our agreements
in order to provide us with competitive advantages in merchandising, marketing
and distributing our products. For example, we believe our agreement with Nike
will allow us to offer the broadest possible product selection of the leading
sporting goods brand. Under the agreement, we will have access to Nike's
generally available product lines and advance product availability for mutually
agreed upon, newly released products. In addition, we intend to leverage our
agreements with major online services and Internet shopping portals such as AOL
to provide us with key positioning in online sporting goods shopping areas. We
intend to augment our distribution capabilities through agreements with third
parties, such as our agreement with Keystone Fulfillment, which provides
outsourced inventory management, warehousing and shipping services. We intend
to continue to pursue similar arrangements, which may include written
agreements, partnerships or other arrangements that allow us to further develop
our business.
Expand Internationally. Although to date we have focused on the United
States, we believe that growth in sales of sporting goods outside of the United
States will represent additional market opportunities for us. To take advantage
of these opportunities, we intend to replicate our business model and build our
brand name in selected international markets with appropriate demographics and
market characteristics. For example, we have opened an office in London to
serve as a launching point for our European operations.
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The Fogdog Sports Store
We designed our online retail store to be a destination site for sports
enthusiasts from the avid enthusiast to the occasional participant. We believe
our online store is well organized, attractive and easy to use, and offers
customers an enjoyable shopping experience. The look and feel of our web site
is action-oriented, and navigation is user-friendly and consistent throughout.
All of our product pages are "three clicks" from our home page, allowing
customers to find and purchase products easily. A consumer shopping on our web
site can, in addition to ordering products, browse the different specialty
shops, conduct targeted searches by product or brand, view recommended
products, participate in promotions and check order status.
Specialty Shops
We categorize many of our products into different specialty shops, including
soccer, baseball, golf, outdoor, and others. Within each shop, products are
organized by brand, such as Nike and Callaway, by department, such as footwear,
apparel and equipment, and by our recommendations, which we call "bestsellers"
and "Fogdog Picks." Each shop has helpful product information and many feature
tips from a site expert with extensive knowledge about the right gear for
specific sports. The following is a summary of our largest specialty shops:
Soccer. We offer an extensive selection of soccer footwear, apparel, and
equipment, with key brands such as adidas, Kappa, Nike, Puma and Umbro. Our
soccer shop includes a Power Search feature, which allows customers to search
all soccer products for available in-stock merchandise in their size. Our on-
site expert provides advice on soccer cleat selection and evaluates equipment.
The soccer shop features a technology report with information on the way
different manufacturers design their cleats, along with a special section on
"What the Pros Wear," where customers can click directly to purchase products
worn by professional athletes.
Outdoor. The outdoor shop features an extensive selection of products for
hiking, climbing, mountaineering and other outdoor activities from
manufacturers such as Hi-Tec, Kelty, Nike ACG, The North Face and Sierra
Designs. Our outdoor shop expert provides helpful information in areas such as
camping and back packing, as well as detailed product reviews. We also feature
a bulletin board service where customers can post questions about products and
sports activities. We offer an extensive product information resource online,
with comparison charts for items such as backpacks, tents and sleeping bags.
Baseball. We believe that we offer the largest selection of baseball
equipment available on the Internet. We also provide a comprehensive selection
of apparel and footwear, including such key brands as Easton, Louisville
Slugger, Mizuno, Nike, Rawlings and Wilson. In our baseball shop, customers can
use a bat configurator that takes input on the individual's height, weight and
league type and chooses an appropriate selection of product. This shop will
have regular equipment reviews by our staff journalists.
Golf. The golf shop offers golf equipment, apparel and footwear including
brands such as Adams, Callaway, Nike Golf, Orlimar, Spalding and Taylor Made.
This shop features a Callaway brand golf shop, with information on how to
select Callaway clubs, what they are made of and how they are designed. We
worked closely with Callaway to develop the content of this area and the shop
offers the entire line of Callaway products. The golf shop also includes an
area called "What's in the Bag," which shows what professional golfers carry on
the course.
Hockey. Our hockey shop features equipment to outfit players of all skill
levels from the novice to the expert. We offer products from leading brands
such as CCM, Bauer, Jofa and Koho.
Snowboard. We believe that our snowboard shop is one of the most complete
snowboard stores online today with manufacturers including Santa Cruz, Ride,
Switch, Flow and Westbeach. The shop also features expert advice on carving and
equipment selection.
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Tennis & Racquet Sports. The tennis and racquet shop includes a wide
selection of tennis equipment, footwear and apparel from top manufacturers such
as Head, Penn, Pro Kennex and Wilson. The tennis racquet shop also offers a
racquet configurator which gives customers the ability to customize their
racquets with their desired grip, string and stringing tension, which generally
ship the same day the order is placed.
Football. The football shop serves a range of players from the recreational,
weekend participant to the serious league player. We offer the merchandise
necessary to outfit a player and/or team including pads, helmets, guards and
braces, from leading manufacturers such as Bike, Nike, Pony, Rawlings and
Wilson.
Fan/Memorabilia. Our fan/memorabilia shop is designed to outfit fans with
apparel and souvenirs from their favorite teams and players. We help fans of a
specific league, player or team find the products that support their teams. The
shop includes products licensed from NCAA collegiate athletics, the National
Football League, Major League Baseball, the National Basketball Association,
the National Hockey League, Major League Soccer and international soccer teams.
The shop also carries vintage era replicas and other related sports memorabilia
such as autographed photos.
Fitness & Health. Our fitness and health shop is an extensive collection of
products and content associated with general fitness. Our fitness shop offers
Avia, Champion, Fitness Quest, Harbinger, Hind and Moving Comfort. The shop
features advice on exercise, apparel selection and nutrition tips.
Group Sales. We believe that Fogdog Sports is the first and currently the
only online retailer to offer custom uniforms and volume discounts for teams.
Our group sales shop enables the team buyer to design custom uniforms and place
the entire order online. We feature a large in-stock selection of uniforms, and
we are able to ship most orders the same day, with a five to seven day
turnaround for custom orders as compared to three to four weeks for most
traditional team dealers.
Shopping At Our Store
Customers navigate our online store through our simple, intuitive and easy-
to-use web site. Our goal is to make the shopping process as easy as possible
for customers. Users accessing our online store generally fall into two
categories: individuals who want to purchase a particular product immediately
in a highly convenient manner, and individuals who browse the store, seeking an
entertaining and informative shopping experience. We designed our online store
to satisfy both types of users in a simple, intuitive fashion.
Browsing and Comparing. Our web site offers visitors a variety of
highlighted subject areas and special features arranged in a simple, easy-to-
use format intended to enhance product search, selection and discovery. By
clicking on the permanently displayed specialty shop names, the consumer moves
directly to the home page of the desired shop and can quickly view promotions
and featured products. On our web site customers can find detailed product
information, including expert reviews of a product, how to use the product and
how to care for it. Customers can use a quick keyword search or search by brand
in order to locate a specific product. They can also execute more sophisticated
searches based on pre-selected criteria depending upon the department. In
addition, customers can browse our online store by linking to specially
designed pages dedicated to products from key national and specialty brands. We
provide product information in tabular form across brands and stock keeping
units for easy comparison of features and benefits.
Customization and Personalization. We use configurators which we call the
"Fogdog Fetch" to identify merchandise unique to a customer's sport
requirements and interests. We also cross-sell merchandise to customers based
on what they have identified as their sport preferences in My Fogdog, what they
have added to their shopping basket during the checkout process and what they
have purchased. Our Fogdog Power Search tool also enables customers to search
for products in some of our shops based on size and brand preferences.
Selecting a Product and Checking Out. To purchase products, customers simply
click on the "add to basket" button to add products to their virtual shopping
cart. Customers can add and subtract products from their shopping cart as they
browse around our store prior to making a final purchase decision, just as in a
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traditional store. Our web site is updated through the direct uploading of
supply information from distributors to remove products that are out of stock.
To execute orders, customers click on the "checkout" button and,
depending upon whether the customer has previously shopped with us, are
prompted to supply shipping details online. We also offer customers a variety
of shipping options during the checkout process. Prior to finalizing an order
by clicking the "submit order" button, customers are shown their total charges
along with the various options chosen at which point customers still have the
ability to change their order or cancel it entirely.
Paying. To pay for orders, a customer must use a gift certificate or credit
card, which is authorized during the checkout process, but which is charged
when the product is shipped. Our web site uses a security technology that works
with the most common Internet browsers. Our system automatically confirms
receipt of each order via email within minutes and notifies the customer when
the order is shipped, typically within one to two business days for in-stock
items. We also offer our customers an unconditional, 45-day money-back return
policy. Repeat customers can use an "Express Checkout" feature in which
customer data and payment information is automatically entered into our system.
Getting Help. From every page of our web site, a customer can click on a
"help" button to go to our customer service area. The customer service area of
our web site contains extensive information for first-time and repeat visitors.
In this area, we assist customers in searching for, shopping for, ordering and
returning our products as well as provide information on our low price
guarantee, shipping charges and other policies. In addition, we provide
customers with answers to the most frequently asked questions and encourage our
visitors to send us feedback and suggestions via email. Furthermore, customer
service agents are available to answer questions about products and the
shopping process during extended business hours via our toll-free number, which
is displayed in the customer service area of our web site.
Promotional Area. Through our promotional area, which is located on the
Fogdog Sports home page, we offer products that tie into recent sporting events
or seasonal themes. For example, we offered soccer jerseys and equipment
following the Women's World Cup, golf equipment and apparel to tie into the
U.S. Open, and backpacks in time for back to school. Customers can also
purchase gift certificates from us in any denomination. We keep each customer's
gift certificate balance on record on the site.
Marketing
We have implemented an aggressive advertising and marketing campaign to
increase awareness of the Fogdog brand. We plan to acquire new customers
through multiple channels, including traditional and online advertising, direct
marketing and expansion and strengthening of our strategic relationships. We
intend to use a significant portion of the net proceeds from this offering to
continue to pursue advertising and marketing campaigns. Our marketing strategy
is designed to:
. build global brand recognition;
. differentiate and build a unique positioning for Fogdog Sports in the
marketplace;
. increase consumer traffic to our web site;
. acquire new customers;
. build strong customer loyalty;
. emphasize a one-on-one relationship with our customers;
. maximize repeat purchases; and
. develop additional ways to increase our net sales.
Positioning and Branding Strategy. We aggressively seek to brand the Fogdog
online experience at every customer touch point, including advertising,
promotions, site experience, packaging and delivery. We seek to position Fogdog
Sports as the trusted online sports store built for people who "live to play
sports" with a selection of top brands, information and expertise. We target a
broad range of customers in active lifestyle households. Our primary
demographic focus is on active sports participants, male and female.
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Advertising Mix. To build brand awareness, the primary elements of our
marketing mix include cable and network television, broad reach online
services, such as AOL, and Web shopping portals. We also employ targeted radio,
print and outdoor media campaigns in specific markets during key sporting goods
shopping seasons. We believe that through a sustained national TV campaign, we
can drive consistent growth in awareness, and reach a broad audience of active
sports participants with high-impact creative advertising. Our TV media plan
includes advertising during major cable and network sports programming and
events. We have also secured agreements with leading shopping portals, with
positioning in sporting goods shopping areas. For example, under our agreement
with AOL, we are a "Shopping Anchor" in two of the four AOL sports shopping
areas. We also have agreements with WebTV, GO Network, Snap.com and Women.com
for prominent positioning in their online shopping areas. In addition, we
advertise on Yahoo! with over 8,000 Fogdog products available through the
Yahoo! shopping area.
Under our contracts with Internet portals and online service providers, we
typically pay a fixed dollar amount in exchange for placement of an enlarged
icon in high traffic areas of their sites. These agreements are generally for a
fixed term of one to two years. For example, under our agreement with AOL, we
have an "anchor" position providing prominent placement in the camping and
outdoor fitness and sports sections of AOL Shopping for the next two years. AOL
guarantees a minimum number of user impressions of our material through AOL's
online service or AOL.com.
Affiliate Network. Our goal is to create and maintain one of the leading
affiliate programs on the Web, extending the reach of our brand and drawing
customers from a variety of sports and general content sites. Our program
provides a low-cost means of acquiring customers by providing a sales
commission of between 10% and 20% to affiliate partners.
Promotions, Events and Sponsorships. We sponsor multiple events to build
credibility with and recognition by athletes and sports enthusiasts, including
the Hi-Tec Adventure Racing Series, an extreme type of triathlon, Let it Fly
Football, a football program that has attracted more than 50,000 participants
and triathlons such as the recent Escape from Alcatraz triathlon in San
Francisco. Promotions on the site, such as a free gym bag with purchase, the
chance to win a Volkswagen Jetta loaded with sports gear, and "A Buck Buys It,"
are designed to encourage consumers to try our service. We have also offered
sports-related sweepstakes to win baseball gloves, soccer gear, adventure trips
and trips to baseball spring training.
Loyalty, Retention and Personalization. We believe that we are building a
loyal base of customers through a total shopping experience which emphasizes
customer service and marketing incentive programs. For example, we communicate
with prospective customers through email campaigns and with customers through
follow-up emails. In addition, through My Fogdog, we collect relevant
information from registered customers that allow us to market more specifically
to each customer's interest. Each registered member of My Fogdog has access to
special product offerings, promotions and targeted offers, which we believe
helps build loyalty.
Distribution Strategy and Operations
Our strategy for delivering our products to our customers is to focus on
obtaining products through authorized distribution channels while maximizing
customer selection and product availability. Inventory available to us is
either reserved for our customers, shared with other partners or purchased for
our account. Our shared and reserved inventory partners include distributors,
manufacturers and catalogers who purchase and inventory products and then make
products available for sale on our web site. These partners ship products
directly to our customers from these partners using our packaging and shipping
materials, so that customers only interact with the Fogdog brand throughout the
order and delivery process. Our purchased inventory is held at two third-party
distribution centers for processing, packaging and shipment to customers. The
shipment of products directly from our distributors, manufacturers and
catalogers to our customers reduces the level of inventory we are required to
carry. We generally handle merchandise returns ourselves. We are currently
evaluating various alternatives to expand the capacity of our distribution
system.
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We use technology to optimize the exchange of information between Fogdog,
our third party distribution centers and our distribution partners, so that we
can properly set customer expectations about product availability and delivery
dates. Our distribution, engineering and logistics teams work with our partners
and third-party warehouses to manage and monitor order accuracy, fulfillment
rate, shipment speed, and overall delivery reliability and timeliness. We
measure performance through daily reports, frequent on-site visits with
partners and our warehouses and quarterly reviews. The following diagram
illustrates our distribution system:
[DIAGRAM OF OUR DISTRIBUTION STRUCTURE SHOWING A BOX LABELED "WWW.FOGDOG.COM,"
OVER A BOX LABELED "FULFILLER MANAGEMENT SYSTEMS (FMS)" OVER THREE ARROWS, ONE
OF WHICH IS LABELED ORDERS AND POINTS DOWN, ONE OF WHICH IS LABELED INVENTORY
AND POINTS UP AND ONE OF WHICH IS LABELED ORDER STATUS AND POINTS UP, ALL THREE
OF WHICH ARROWS ARE OVER A BOX LABELED FULFILLMENT PARTNERS, WHICH BOX IS OVER
FOUR SIDE BY SIDE BOXES LABELED "FOGDOG WAREHOUSE," "DISTRIBUTORS," "DIRECT
SHIP" AND "SEARCH SQUAD."]
Merchandising
Merchandising. Our merchandising strategy is to provide a broad assortment
of quality equipment, athletic footwear and apparel at prices that meet those
of leading sporting goods retailers. Our web site, particularly in our
specialty and brand shops, offers a core selection of brand name merchandise
complemented by a selection of accessories and related products designed to
enable enthusiasts to have a quality shopping experience. Our leading product
category is sporting equipment, followed by apparel and athletic footwear. No
single product category accounts for more than 50% of sales.
Brand Name Merchandise. We emphasize quality brand name merchandise. We
believe that the breadth of our brand name merchandise selection generally
exceeds the merchandise selection carried by traditional, store-based
competitors. Many of these branded products are technical and our customers
benefit from extensive product information and sales assistance. We work with
manufacturers to obtain product information and educate the sports consultants
we keep on staff on the latest features and trends.
Strategic Relationship with Nike. We expect that our relationship with Nike
will provide us with an extensive selection of high quality branded products.
Under the terms of our agreement, Nike will not sell its products to any other
retailer that sells only on the Internet, except for entities affiliated with
Nike customers that derive the majority of their revenue from traditional
retail stores or entities that serve as web sales outsourcing providers for
these Nike customers, through March 2000. In addition, we will have access to
all of Nike's generally available product lines, including Jordan, Bauer, Nike
ACG, Nike Golf and Nike Team Sports. Our agreement also allows us advance
availability on mutually agreed upon products included in Nike's
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generally available product line and the right to return a percentage of some
product lines to Nike for a full refund. Under the agreement, Nike and its
affiliates are not legally obligated to sell us any quantity of product or
deliver on any particular schedule.
Purchasing. Our merchandising manager and merchandise buyers analyze current
sporting goods trends by maintaining close relationships with our
manufacturers, monitoring sales at competing stores, studying specialized data
about traffic to our web site and reviewing industry trade publications.
Customer Service
We believe that a high level of customer service and support is critical to
retaining and expanding our customer base. First, our web site is designed to
help answer many questions customers might have in selecting products. Our
customer service representatives are available seven days a week to provide
assistance via email or telephone. We strive to answer all customer inquiries
within 24 hours. Sports consultants on our customer service team are hired for
their extensive knowledge and background in athletics and sporting goods. Their
backgrounds include experience as athletes, coaches and working for sporting
goods manufacturers and retailers. The combination of specific sport and
category understanding, knowledge of products and their use, and technical
capabilities enable them to guide our customers in making an informed product
selection. Our sports consultants also handle questions about orders, assist
customers in finding desired products and register customers' credit card
information over the telephone. We generally allow returns for any reason
within 45 days of the sale for a full refund. Further, if a customer cannot
find a product on our site, we provide the Fogdog Search Squad, which helps
locate products primarily through our existing distribution channels. Our web
site also contains a customer service page that outlines store policies and
provides answers to frequently asked questions.
Technology
We have implemented a broad array of web site management, search, customer
interaction, distribution services and systems that we use to process
customers' orders and payments. These services and systems use a combination of
our own technologies and commercially available, licensed technologies and are
designed to be easily expanded to grow with our business. The systems that we
use to process customers' orders and payments are integrated with our
accounting and financial systems. We focus our internal development efforts on
creating and enhancing specialized software for our business. We use a set of
applications for:
. generating and running our web site;
. managing product data, including product details, inventory and pricing;
. accepting and validating customer orders;
. organizing, placing and managing orders with suppliers and partners; and
. capturing and analyzing customer information and trends.
Our systems are based on commercially available software and industry
standard protocols and have been designed to reduce downtime in the event of
outages or catastrophic occurrences. Our system hardware is hosted at a third-
party data center in Mountain View, California, which provides redundant
communications lines and emergency power backup. We have implemented load
balancing systems and our own redundant servers to provide for fault tolerance.
System security is managed by both internal staff as well as by security staff
at our third-party data center.
Government Regulation
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly
applicable to retailing or electronic commerce. However, as the Internet
becomes increasingly popular, it is possible that a number of laws and
regulations may be adopted with respect to the Internet. These laws may cover
issues such as user privacy, freedom of expression, pricing, content and
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quality of products and services, taxation, advertising, intellectual property
rights and information security. Furthermore, the growth of electronic commerce
may prompt calls for more stringent consumer protection laws. Several states
have proposed legislation to limit the uses of personal user information
gathered online or require online services to establish privacy policies. The
Federal Trade Commission has also initiated action against at least one online
service regarding the manner in which personal information is collected from
users and provided to third parties and has proposed regulations restricting
the collection and use of information from minors online. We do not currently
provide individual personal information regarding our users to third parties
and we currently do not identify registered users by age. However, the adoption
of additional privacy or consumer protection laws could create uncertainty in
Web usage and reduce the demand for our products and services or require us to
redesign our web site.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity,
qualification to do business and export or import matters. The vast majority of
these laws were adopted prior to the advent of the Internet. As a result, they
do not contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address these issues could create
uncertainty in the Internet marketplace. This uncertainty could reduce demand
for our services or increase the cost of doing business as a result of
litigation costs or increased service delivery costs.
Competition
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. Our primary
competitors are currently traditional national chain retailers of sporting
goods, including Venator Group, which operates Footlocker stores and Champs,
national chain retailers of outdoor equipment, such as REI, and national chain
retailers of athletic footwear, such as Just For Feet. We also compete against
traditional regional chain retailers of sporting goods, such as The Sports
Authority, Dick's Sporting Goods and Galyan's. Our competitors also include
major discount retailers, such as Wal-Mart, Kmart and Target, catalog retailers
and numerous local sporting goods or outdoor activities stores. In addition to
traditional store-based retailers, we compete with numerous online retailers.
Online retailers that we compete with include the online efforts of traditional
retailers such as Dick's, Copeland's and REI and manufacturers of sporting
goods that currently sell some of their products directly online, such as K-
Swiss and Patagonia. The Sports Authority, The Athlete's Foot, MC Sports and
Sport Chalet have also announced the formation of an online joint venture which
we expect to compete with in the future. In addition, we compete against
Internet portal sites and online service providers that either offer or feature
shopping services, such as AOL, Yahoo!, Excite@Home, GO Network and Lycos. We
also compete against other online retailers that include sporting goods as part
of their product lines, such as Buy.com, Onsale and Value America. In addition,
sports-oriented web sites such as ESPN.com and CBS Sportsline offer sporting
goods and fan memorabilia over the Web, and we expect greater competition from
these web sites in the future. Finally, we compete with other retailers selling
sporting goods exclusively online, many of which sell products in only one or a
few sports categories.
We believe that we compete primarily on the basis of recognition of the
brands we offer on our web site, the breadth of our product offerings, the
amount of product information provided to customers, convenience of the
shopping experience and price. Particularly with online retailers, we compete
on the basis of speed and accessibility of our web site, quality of site
content, customer service and reliability and speed of order shipment. Although
we believe we compete favorably with both traditional, store-based retailers
and our online competitors, our market is relatively new and is evolving
rapidly. We may not be able to maintain our competitive position against
current and potential competitors, especially those with significantly greater
financial, marketing, service, support, technical and other resources.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and more traffic to their web sites. In addition, many
of our competitors have well-established relationships with manufacturers and
more extensive knowledge about our industry. It is possible that new
competitors or alliances among competitors will emerge in the future.
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Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a materially adverse effect on us.
Intellectual Property
We rely on various intellectual property laws and contractual restrictions
to protect our proprietary rights in services and technology. These include
confidentiality, invention assignment and nondisclosure agreements with
employees, contractors, suppliers and strategic partners. Despite these
precautions, it may be possible for a third-party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
pursue the registration of our trademarks and service marks in the U.S. and
internationally. However, effective intellectual property protection may not be
available in every country in which our services are made available online. Our
trademarks and service marks include Fogdog, Fogdog with the accompanying
design and the Fogdog logo.
We rely on technologies that we license from third parties. These licenses
may not continue to be available to us on commercially reasonable terms in the
future. As a result, we may be required to obtain substitute technology of
lower quality or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
We do not believe that our technologies infringe the proprietary rights of
third parties. However, third parties have in the past and may in the future
claim that our business or technologies infringe their rights. From time to
time, we have received notices from third parties questioning our right to
present specific images or mention athletes' names on our Web site, or stating
that we have infringed their trademarks or copyrights. For example, in June
1999 we received a letter from a third party stating his belief that our
Internet marketing activities infringe a patent for a home shopping device, and
inviting us to license this technology. Also, in October 1999 we received a
letter from a third party alleging that our use of the trademark "Fogdog" and
the domain name for our web site fogdog.com, infringed a registered trademark
licensed by this third party, and further alleging unfair competition under
state and federal trademark law. We expect that participants in our markets
will be increasingly subject to infringement claims as the number of services
and competitors in our industry segment grows. Any such claim, with or without
merit, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements might not be available on terms acceptable
to us or at all. As a result, any such claim of infringement against us could
have a material adverse effect upon our business, results of operations and
financial condition.
Employees
As of September 30, 1999, we had 96 full-time employees. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our employee relations to be good.
Facilities
Our corporate offices are located in Redwood City, California, where we
lease 32,000 square feet under a lease that expires in July 2004. We believe
our existing facilities are adequate to meet our needs for at least the next 12
months.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth certain information regarding our executive
officers, directors and key employees as of November 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors
Timothy P. Harrington......... 42 Chief Executive Officer and Director
Timothy J. Joyce.............. 43 President
Marcy E. von Lossberg......... 30 Chief Financial Officer
Brett M. Allsop............... 29 President, International Division, and
Chairman of the Board
Robert S. Chea................ 28 Vice President, Engineering
Mark S. Garrett .............. 41 Vice President, Finance
Frederick M. Gibbons.......... 49 Director
Peter J. Huff................. 29 Director
Robert R. Maxfield............ 57 Director
Warren J. Packard............. 32 Director
Ralph T. Parks................ 53 Director
Ray A. Rothrock............... 44 Director
Lloyd D. Ruth................. 52 Director
Key Employees
Ronald L. Berry............... 50 Vice President, General Merchandising
Andrew Y. Chen................ 28 Vice President, Team Sports
Mark G. Loncar................ 36 Vice President, Executive Producer
John P. McGovern.............. 41 General Counsel
Thomas G. Romary.............. 33 Vice President, Marketing
Executive Vice President, Strategic
Robin R. Smith................ 52 Development
Phillip A. Winters............ 42 Vice President, Business Development
</TABLE>
Timothy P. Harrington. Mr. Harrington joined Fogdog Sports in June 1998 as
President, Chief Operating Officer and a director. In January 1999 he became
Chief Executive Officer and ceased serving as Chief Operating Officer. Prior to
joining Fogdog Sports, from March 1997 to April 1998, Mr. Harrington served as
General Manager of GolfWeb, Inc., a golf information and e-commerce web site.
From June 1996 to December 1996, Mr. Harrington served as the Director of
National Accounts for Cobra Golf, Inc., a manufacturer of golf equipment. Prior
to working with Cobra Golf, Inc., from June 1979 to June 1996, Mr. Harrington
served in various financial management positions with International Business
Machines Corporation, a computer systems corporation, including Chief Operating
Officer for International Business Machines' education division. Mr. Harrington
was a Sloan Fellow at Stanford University's Graduate School of Business. Mr.
Harrington holds a B.B.A. in accounting from Siena College and an M.S. in
business management from Stanford University's Graduate School of Business.
Timothy J. Joyce. Mr. Joyce joined Fogdog Sports in August 1999 as
President. Prior to joining Fogdog Sports, from April 1980 to August 1999, Mr.
Joyce held various positions at Nike, Inc., an athletic apparel and footwear
manufacturer, serving as Divisional Vice President for Global Sales from
February 1997 to August 1999, Director of European Sales from August 1994 to
February 1997, Director of USA Footwear Sales from May 1990 to August 1994 and
Regional Sales Manager from March 1987 to May 1990. Mr. Joyce holds both a B.A.
and an M.S. in sports administration from Ohio University.
Marcy E. von Lossberg. Ms. von Lossberg joined Fogdog Sports in January 1995
as Chief Financial Officer. Prior to joining Fogdog Sports, from April 1993 to
December 1994, Ms. von Lossberg served as a
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Senior Business Planner for Walt Disney Studios, an entertainment and media
company. From June 1991 to March 1993, Ms von Lossberg served as a financial
analyst for BT Securities, a financial services company. Ms. von Lossberg holds
a B.A. in economics and political science from Stanford University.
Brett M. Allsop. Mr. Allsop is a co-founder of Fogdog Sports, and he has
served as Chairman of the Board of Directors and President of the International
Division of Fogdog Sports since January 1999. From June 1998 to January 1999
Mr. Allsop served as our Chief Executive Officer. From October 1994 to June
1998 Mr. Allsop served as our President. Mr. Allsop holds a B.A. engineering
degree in values, technology, science and society from Stanford University.
Robert S. Chea. Mr. Chea is a co-founder of Fogdog Sports and has served as
Vice President of Engineering since October 1994. Prior to joining Fogdog
Sports, from January 1994 to September 1994, Mr. Chea served as an engineer at
Award Software International, Inc., a firmware software vendor. Mr. Chea holds
a B.S. in electrical engineering from Stanford University.
Mark S. Garrett. Mr. Garrett joined Fogdog Sports in November 1999 as Vice
President, Finance. Prior to joining Fogdog Sports, from January 1997 until
October 1999, Mr. Garrett served as the Vice President, Chief Financial Officer
and Secretary of Documentum, Inc., a software development and consulting
corporation. Prior to joining Documentum, Inc., from June 1991 through December
1996, Mr. Garrett held various positions at Cadence Design Systems, Inc., a
supplier of electronic design automation software, serving as Vice President of
Worldwide Corporate Financial Planning and Analysis from February 1995 through
December 1996, Finance Group Director for the Spectrum Services division from
August 1994 to February 1995, Finance Group Director for Technology Development
from January 1993 to July 1994, and Division Controller and Finance Director
for the Systems and CAE Divisions of Cadence from June 1991 to December 1992.
From June 1979 to May 1991, Mr. Garrett held various financial positions at IBM
Corporation. Mr. Garrett holds an M.B.A. from Marist College and a B.S.B.A.
from Boston University.
Frederick M. Gibbons. Mr. Gibbons has served as a director of Fogdog Sports
since April 1996. Since January 1995, Mr. Gibbons has been a lecturer in
business management at Stanford University's Graduate School of Engineering.
From September 1980 to April 1994, Mr. Gibbons served as the Chief Executive
Officer of Software Publishing Corporation, a personal computer productivity
software company that he founded in 1981. Mr. Gibbons holds both a B.S. in
electrical engineering and a M.S. in computer science from the University of
Michigan and an M.B.A. from the Harvard Business School.
Peter J. Huff. Mr. Huff has served as a director of Fogdog Sports since
August 1999. Mr. Huff joined J.H. Whitney and Co., a private venture capital
firm, in September 1997 and now serves as Managing Director of Whitney Internet
Venture Investing. Mr. Huff is also currently a General Partner and Co-Founder
of Triad Media Ventures, a private venture capital firm. From May 1993 to
September 1997, Mr. Huff was a management consultant with McKinsey and Company,
Inc. From June 1992 to June 1993, Mr. Huff served as a Fulbright Fellow at the
National University of Singapore. He currently serves as a director of Brooks,
Business Data Services, ExpertCentral.com and other private companies. Mr. Huff
received a B.A. from Southern Methodist University and an M.B.A. from Stanford
University's Graduate School of Business.
Robert R. Maxfield. Mr. Maxfield has served as a director of Fogdog Sports
since September 1996. Since January 1989, Mr. Maxfield has served as a
professional consultant and has invested in private start-up and emerging
growth companies. From March 1989 to September 1992, Mr. Maxfield was a venture
partner with Kleiner Perkins Caufield & Byers, a venture capital firm. From
June 1969 to November 1988 Mr. Maxfield served as an Executive Vice President
of ROLM Corporation, a telecommunications and computer equipment company which
he co-founded. Mr. Maxfield was a director of ROLM Corporation from June 1980
to November 1984. Mr. Maxfield also serves on the board of directors of Echelon
Corporation, a public company. Mr. Maxfield holds both a B.A. and a B.S. in
electrical engineering from Rice University and an M.S. and a Ph.D. in
electrical engineering from Stanford University.
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Warren J. Packard. Mr. Packard has served as a director of Fogdog Sports
since June 1999. Since June 1997, Mr. Packard has been a venture capitalist
with Draper Fisher Jurvetson, a venture capital firm. Prior to joining Draper
Fisher Jurvetson, from January 1996 until June 1997, Mr. Packard was Vice
President of Business Development of Angara Database Systems, a main-memory
database technology company which he founded. From June 1996 to January 1997,
Mr. Packard was an Associate at Institutional Venture Partners, a venture
capital firm, investing in early-stage technology companies. From August 1991
to August 1995, Mr. Packard served as a Senior Principal Engineer in the New
Business and Advanced Product Development Group at Baxter International. He
currently serves as a director of Chili!Soft, Inc., Corvia Networks, Inc.,
Digital Impact, Inc., DigitalWork, Inc., Direct Hit Technologies, Inc., Eclipse
International and Best Offer.Com, Inc. Mr. Packard holds a B.S. and M.S. in
Mechanical Engineering from Stanford University and an M.B.A. from Stanford
University's Graduate School of Business.
Ralph T. Parks. Mr. Parks has served as a director of Fogdog Sports since
September 1999. Mr. Parks served as President of Footaction USA, a footwear
retailer, from 1991 to 1999 and as Footaction's Executive Vice President and
Chief Operating Officer from 1987 to 1991.
Ray A. Rothrock. Mr. Rothrock has served as a director of Fogdog Sports
since March 1999. Mr. Rothrock serves as a General Partner of Venrock
Associates, a venture capital firm. Mr. Rothrock also serves on the boards of
directors of Check Point Software Technologies Ltd., USinternetworking, Inc.
and several private companies, including Appliant, General Bandwidth,
PrintNation.com, QPass, Reciprocal, Simba Technology, Shym Technology,
Space.com and Versity.com. Mr. Rothrock holds a B.S. in nuclear engineering
from Texas A&M University, an M.S. in nuclear engineering from the
Massachusetts Institute of Technology and an M.B.A. with distinction from the
Harvard Business School.
Lloyd D. "Chip" Ruth. Mr. Ruth has served as a director of Fogdog Sports
since March 1999. Since January 1987, Mr. Ruth has served as a Partner of
Marquette Venture Partners, a venture capital firm that he co-founded. Mr. Ruth
holds a B.S. in industrial engineering from Cornell University, an M.S. in
computer science from the Naval Postgraduate School in Monterey and an M.B.A.
from Stanford University's Graduate School of Business.
Ronald L. Berry. Mr. Berry joined Fogdog Sports in July 1999 as our Vice
President of General Merchandising. Prior to joining Fogdog Sports, from April
1996 to May 1998, Mr. Berry served as Vice President, Division Merchandising
Manager for Footlocker U.S.A., an athletic footwear and apparel company. From
February 1992 to March 1996, Mr. Berry served as the General Merchandising
Manager of Footlocker Europe.
Andrew Y. Chen. Mr. Chen is a co-founder of Fogdog Sports. From October 1994
to June 1996, he served as our Director of Technical Development. From June
1996 until August 1998, he served as our Vice President of Production. In
August 1998, he became the Vice President of Quality Control and in January
1999 was appointed Vice President of Team Sports.
Mark G. Loncar. Mr. Loncar joined Fogdog Sports in August 1998 as our Vice
President and Executive Producer. Prior to joining Fogdog Sports, from June
1992 to August 1998, Mr. Loncar was a partner with the CKS Group, a marketing,
communications and design company. Prior to June 1992, Mr. Loncar served as a
Vice President and Director of Worldwide Technology with BBDO Advertising.
John P. McGovern. Mr. McGovern joined Fogdog Sports in March 1999 as our
General Counsel. Prior to joining Fogdog Sports, from December 1984 to March
1999, Mr. McGovern was an attorney in private practice, focusing on business
and employment law. Mr. McGovern holds a B.A. in economics and philosophy from
the University of California at San Diego and a J.D. from Martin Luther King,
Jr. Hall at the University of California at Davis.
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Thomas G. Romary. Mr. Romary joined Fogdog Sports in July 1998 as our Vice
President of Marketing. Prior to joining Fogdog Sports, from June 1997 to June
1998, Mr. Romary served as the Director of Marketing of GolfWeb, Inc., a golf
information and e-commerce web site. From May 1995 to May 1997, Mr. Romary
served in various marketing positions with Creative Wonders, an educational
software company, including Product Manager, Group Product Manager and Director
of Channel Marketing. From August 1992 to May 1995, Mr. Romary served in brand
management for General Mills, a consumer goods corporation. Mr. Romary holds a
B.S. in engineering from Duke University and an M.B.A. from the Harvard
Business School.
Robin R. Smith. Mr. Smith joined Fogdog Sports in July 1996 as Vice
President of Sales and Marketing and has served as our Executive Vice President
of Strategic Business Development since April 1999. Prior to joining Fogdog
Sports, from February 1989 to October 1995, Mr. Smith served as Vice President
and General Manager of Mizuno Sports, Inc., a manufacturer of sporting goods
footwear, apparel and equipment. From 1983 to 1988, Mr. Smith held several
senior positions with Avia Athletic Footwear, including Vice President of
Marketing for Avia and Vice President and General Manager for the Donner
Mountain division. Mr. Smith holds a B.A. in economics from Occidental College
and an M.B.A. in Marketing and Finance from the Wharton School at the
University of Pennsylvania.
Phillip A. Winters. Mr. Winters joined Fogdog Sports in January 1999 as
Director of Business Development and has served as our Vice President of
Business Development since April 1999. Prior to joining Fogdog Sports, from
June 1978 to December 1998, Mr. Winters served in United States Naval Aviation
in positions including global logistics, operations, strategic management, and
command of a squadron. Mr. Winters served as a commanding officer from January
1997 to December 1998. Mr. Winters holds a B.S. in engineering from the United
States Naval Academy and an M.S. in management from Stanford University's
Graduate School of Business.
Board of Directors
We currently have authorized nine directors. Following this offering, our
board will consist of nine directors divided into three classes, with each
class serving for a term of three years. At each annual meeting of
stockholders, directors will be elected by the holders of common stock to
succeed the directors whose terms are expiring. Messrs. Maxfield, Gibbons and
Huff are Class I directors whose terms will expire in 2000, Messrs. Ruth,
Packard and Allsop are Class II directors whose terms will expire in 2001 and
Messrs. Harrington, Rothrock and Parks are Class III directors whose terms will
expire in 2002. This classification of the board of directors may delay or
prevent a change in control of our company or in our management. See
"Description of Capital Stock--Antitakeover Effects of Provisions of the
Certificate of Incorporation, Bylaws and Delaware Law."
Board Committees
We have established an audit committee composed of independent directors
that reviews and supervises our financial controls, including the selection of
our auditors, reviews our books and accounts, meets with our officers regarding
our financial controls, acts upon recommendations of our auditors and takes
further actions as the audit committee deems necessary to complete an audit of
our books and accounts, as well as other matters that may come before it or as
directed by the board. The audit committee currently consists of three
directors, Messrs. Gibbons, Rothrock and Packard.
We have also established a compensation committee that reviews and approves
the compensation and benefits for our executive officers, administers our stock
plans and performs other duties as may from time to time be determined by the
board. The compensation committee currently consists of three directors,
Messrs. Maxfield, Ruth and Huff.
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Director Compensation
We currently do not compensate any non-employee member of the board.
Directors who are also employees do not receive additional compensation for
serving as directors.
Under the 1999 Stock Incentive Plan, non-employee directors will receive
automatic option grants upon becoming directors and on the date of each annual
meeting of stockholders. The 1999 Stock Incentive Plan also contains a director
fee option grant program. Should this program be activated in the future, each
non-employee board member will have the opportunity to apply all or a portion
of any annual retainer fee otherwise payable in cash to the acquisition of an
option with an exercise price below the then fair market value. Non-employee
directors will also be eligible to receive discretionary option grants and
direct stock issuances under the 1999 Stock Incentive Plan. See "Management--
Benefit Plans."
In August 1999, we granted Mr. Parks an option to purchase 26,666 shares of
common stock at an exercise price of $1.32 per share, vesting in annual
installments over a four-year period measured from the option grant date.
Compensation Committee Interlocks and Insider Participation
None of our compensation committee members is an employee of or ever was an
employee of Fogdog Sports. Messrs. Huff and Rothrock, who serve on our
compensation committee, are affiliated with two of our significant
stockholders. See "Transactions and Relationships with Related Parties." None
of our executive officers serves on the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of our board or our compensation committee.
Executive Officers
Our executive officers are appointed by and serve at the discretion of our
board of directors. There are no family relationships among any of our
directors, officers or key employees.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning all
compensation earned during the year ended December 31, 1998 by our Chief
Executive Officer and each of the four other most highly compensated executive
officers for the fiscal year ended December 31, 1998, referred to in this
prospectus as the named executive officers for services rendered during the
fiscal year. In August 1999, Mr. Joyce joined us as our President. Mr. Joyce's
annualized salary for 1999 is $280,000. In November 1999, Mr. Garrett joined us
as our Vice President, Finance. His annualized salary for 1999 is $240,000. In
March 1999, the board of directors approved increases in the annual salaries
that we pay our named executive officers. Pursuant to this increase:
. Mr. Allsop's annualized salary for 1999 is $135,000;
. Mr. Harrington's annualized salary for 1999 is $170,000;
. Ms. von Lossberg's annualized salary for 1999 is $115,000; and
. Mr. Chea's annualized salary for 1999 is $110,000.
No individual who would otherwise have been includable in the table on the
basis of salary and bonus earned during 1998 has resigned or otherwise
terminated his or her employment during 1998.
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<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
-------------------- ------------
Fiscal Securities
Year Underlying
Name and Principal Position Ended Salary ($) Bonus ($) Options (#)
- --------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Brett M. Allsop....................... 1998 86,884 -- 33,333
President, International Division and
former Chief Executive Officer
Timothy P. Harrington (2)............. 1998 86,442 -- 800,000
Chief Executive Officer
Robin R. Smith........................ 1998 114,308 -- --
Executive Vice President, Strategic
Development
Marcy E. von Lossberg................. 1998 95,517 13,000 --
Chief Financial Officer
Robert S. Chea........................ 1998 78,585 -- 33,333
Vice President, Engineering
</TABLE>
- --------
(1) Excludes other compensation in the form of perquisites and other personal
benefits that constitutes the lesser of $50,000 or 10% of the total annual
salary and bonus of each of the named executive officers in 1998.
(2) Mr. Harrington joined us in June 1998. His annualized salary for 1998 was
$150,000.
Option Grants in Fiscal Year 1998
The following table sets forth certain information with respect to stock
options granted to each of our named executive officers in 1998, including the
potential realizable value over the term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. No stock appreciation
rights were granted during 1998.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates
Number of Percent of of Stock Price Appreciation
Securities Total Options for Option Term
Underlying Granted at Public Offering Price ($)
Options to Employees in Exercise Expiration ------------------------------
Name Granted Fiscal 1998 Price ($) Date 5% 10%
- ---- ---------- --------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Brett M. Allsop......... 33,333 1.7% 0.082 12/31/02 380,147 480,414
Timothy P. Harrington... 800,000 41.2 0.082 06/02/02 9,123,626 11,530,072
Robin R. Smith.......... -- -- -- -- -- --
Marcy E. von Lossberg... -- -- -- -- -- --
Robert S. Chea.......... 33,333 1.7 0.082 12/31/02 380,147 480,414
</TABLE>
In 1998, we granted options to purchase an aggregate of 1,944,000 shares to
employees, directors and consultants under our Amended and Restated 1996 Stock
Option Plan at exercise prices equal to the fair market value of our common
stock on the date of grant, as determined in good faith by our board of
directors. Options granted are immediately exercisable in full, but any shares
purchased under these options that are not vested are subject to our right to
repurchase the shares at the shares' option exercise price. In general, this
repurchase right lapses as to 25% of the shares after one year of service and
as to the remaining shares in equal monthly installments over an additional
three-year period. However:
. the options granted to Mr. Harrington vest in 48 equal monthly
installments; and
. 8,333 of the options granted to Mr. Chea and Mr. Allsop vested on
January 1, 1999 and the remaining options vest in a series of 36 equal
monthly installments beginning on January 1, 1999.
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The potential realizable value is calculated assuming the aggregate exercise
price on the date of grant appreciates at the indicated rate for the entire
term of the option and that the option is exercised and sold on the last day of
its term at the appreciated price. Stock price appreciation of 5% and 10% is
assumed pursuant to the rules of the Commission. We can give no assurance that
the actual stock price will appreciate over the term of the options at the
assumed 5% and 10% levels or at any other defined level. Actual gains, if any,
on stock option exercises will be dependent on the future performance of our
common stock. Unless the market price of the common stock appreciates over the
option term, no value will be realized from the option grants made to the named
executive officers.
In March 1999, we granted to the following named executive officers, options
to purchase the following numbers of shares of common stock at an exercise
price of $0.33 per share:
. Mr. Allsop received an option to purchase 33,333 shares of common stock;
. Mr. Harrington received an option to purchase 533,333 shares of common
stock;
. Mr. Smith received an option to purchase 40,000 shares of common stock;
. Ms. von Lossberg received an option to purchase 66,666 shares of common
stock; and
. Mr. Chea received an option to purchase 33,333 shares of common stock.
The options are immediately exercisable, but any shares purchased under these
options that are not vested are subject to repurchase by us at the option
exercise price. This repurchase right lapses with respect to shares in 48 equal
monthly installments.
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
The following table sets forth information concerning the number and value
of shares of common stock underlying the unexercised options held by the named
executive officers. No options or stock appreciation rights were exercised
during 1998 and no stock appreciation rights were outstanding as of December
31, 1998. The value of unexercised in-the-money options at December 31, 1998 is
calculated on the basis of the assumed initial public offering price of $9.00,
less the aggregate exercise price of the options.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at December In-the-Money Options at
31, 1998 December 31, 1998
------------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Brett M. Allsop......... 33,333 -- $ 297,247 --
Timothy P. Harrington... 800,000 -- 7,134,000 --
Robin R. Smith.......... 381,406 -- 3,401,188 --
Marcy E. von Lossberg... 100,000 -- 891,741 --
Robert S. Chea.......... 33,333 -- 297,247 --
</TABLE>
Benefit Plans
1999 Stock Incentive Plan
Introduction. Our 1999 Stock Incentive Plan is intended to serve as the
successor program to our Amended and Restated 1996 Stock Option Plan. The 1999
plan was adopted by our board in September 1999 and will be approved by our
stockholders prior to the consummation of this offering. The 1999 plan will
become effective when the underwriting agreement for this offering is signed.
At that time, all outstanding options under our existing plan will be
transferred to the 1999 plan, and no further option grants will be made under
the prior plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 plan to those options. Except as otherwise noted below,
the transferred options have substantially the same terms as will be in effect
for grants made under the discretionary option grant program of our 1999 plan.
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Share Reserve. 6,296,631 shares of our common stock have been authorized for
issuance under the 1999 plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1996 plan plus an additional
increase of 800,000 shares. The share reserve under our 1999 plan will
automatically increase on the first trading day in January of each year from
2001 through 2005, by an amount equal to 3% of the total number of shares of
our common stock outstanding on the last trading day of December in the prior
year, but in no event will this annual increase exceed 2,000,000 shares. In
addition, no participant in our 1999 plan may be granted stock options or
direct stock issuances for more than 1,000,000 shares of common stock in total
in any calendar year.
Programs. Our 1999 plan has five separate programs:
. the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
. the stock issuance program, under which eligible individuals may be
issued shares of our common stock that will vest upon the attainment of
performance milestones or upon the completion of a period of service or
that are fully vested at issuance as a bonus for past services;
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below market stock option grants;
. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash for the year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
that we hire.
Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to
be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The compensation committee
will also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program if that program is put into effect for one or more calendar years.
Plan Features. Our 1999 plan will include the following features:
. The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 plan, in return for the grant of new
options for the same or different number of option shares with an
exercise price per share based upon the fair market value of our common
stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from
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us equal to the fair market value of the shares subject to the
surrendered options less the exercise price payable for those shares. We
may make the payment in cash or in shares of our common stock. None of
the options under our 1996 plan have any stock appreciation rights.
Change in Control. The 1999 plan will include the following change in
control provisions that may result in the accelerated vesting of outstanding
option grants and stock issuances:
. If we are acquired by merger or asset sale, each outstanding option
under the discretionary option grant program that is not to be assumed
by the successor corporation will immediately become exercisable for all
the option shares, and all outstanding unvested shares will immediately
vest, except to the extent our repurchase rights with respect to those
shares are to be assigned to the successor corporation.
. The compensation committee will have complete discretion to grant one or
more options that will become exercisable for all the option shares if
those options are assumed in the acquisition but the optionee's service
with us or the acquiring entity is subsequently terminated. The vesting
of any outstanding shares under our 1999 plan may be accelerated upon
similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than fifty percent of our outstanding voting stock or a change in
the majority of our board through one or more contested elections. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
. The compensation committee will have the discretionary authority to
extend any of the acceleration provisions of the 1999 plan to one or
more options transferred from our 1996 plan which do not otherwise
contain those provisions. Currently, the transferred options are
structured so that we may cancel those options, to the extent not
exercised within five days prior to an acquisition by merger or asset
sale, in return for a cash payment per option share equal to the price
payable per share of our common stock in connection with the
acquisition, less the option exercise price. To the extent such cash
payment is not made, then the options will immediately terminate upon
the closing of the acquisition, unless those options are assumed in the
acquisition.
Salary Investment Option Grant Program. If the compensation committee
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees may elect to
reduce his or her base salary for the calendar year by an amount not less than
$10,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined by dividing
the salary reduction amount by two-thirds of the fair market value per share of
our common stock on the grant date. The option will have an exercise price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the option will be structured so that the fair market
value of the option shares on the grant date less the exercise price payable
for those shares will be equal to the amount of the salary reduction. The
option will become exercisable in a series of 12 equal monthly installments
over the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 10,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders meeting held after the effective date of this offering, each non-
employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 2,500 shares of common stock,
provided such individual has served on the board for at least six months.
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<PAGE>
Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option that are not vested at the
time of the optionee's cessation of board service. The shares subject to each
initial 10,000-share automatic option grant will vest in a series of three
successive annual installments upon the optionee's completion of each year of
board service over the three-year period measured from the grant date. The
shares subject to each annual 2,500-share automatic option grant will vest upon
the optionee's completion of one year of board service measured from the grant
date. However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
Director Fee Option Grant Program. If this program is put into effect in the
future, then each non-employee board member may elect to apply all or a portion
of any cash retainer fee for the year to the acquisition of a below-market
option grant. The option grant will automatically be made on the first trading
day in January in the year for which the non-employee board member would
otherwise be paid the cash retainer fee in the absence of his or her election.
The option will have an exercise price per share equal to one-third of the fair
market value of the option shares on the grant date, and the number of shares
subject to the option will be determined by dividing the amount of the retainer
fee applied to the program by two-thirds of the fair market value per share of
our common stock on the grant date. As a result, the option will be structured
so that the fair market value of the option shares on the grant date less the
exercise price payable for those shares will be equal to the portion of the
retainer fee applied to that option. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
serving as a board member.
Additional Program Features. Our 1999 plan will also have the following
features:
. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.
. The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later
than September 2009.
1999 Employee Stock Purchase Plan
Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the board
in September 1999 and will be approved by the stockholders prior to the
consummation of this offering. The plan will become effective immediately upon
the signing of the underwriting agreement for this offering. The plan is
designed to allow our eligible employees and the eligible employees of our
participating subsidiaries to purchase shares of our common stock, at semi-
annual intervals, with their accumulated payroll deductions.
Share Reserve. 500,000 shares of our common stock will initially be reserved
for issuance. The reserve will automatically increase on the first trading day
in January of each year from 2001 through 2005, by an
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amount equal to 1% of the total number of outstanding shares of our common
stock on the last trading day in December in the prior year. In no event will
any such annual increase exceed 1,000,000 shares.
Offering Periods. The plan will have a series of successive overlapping
offering periods with a new offering period beginning on the first business day
of February and August each year and each continuing for a period of 24 months.
However, the initial offering period will start on the date the underwriting
agreement for the offering is signed and will end on the last business day in
January 2002.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date of that period. Employees may participate in only one offering
period at a time.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will
be applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the start date of the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will occur on the last business day of January and July each year. The
first purchase date will occur on the last business day of July 2000. In no
event, however, may any participant purchase more than 750 shares on any
purchase date, and not more than 125,000 shares may be purchased in total by
all participants on any purchase date.
Reset Feature. If the fair market value per share of our common stock on any
purchase date is less than the fair market value per share on the start date of
the two-year offering period, then that offering period will automatically
terminate, and participants in that offering period will automatically be
enrolled in the new 24-month offering period beginning on the next business
day.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than 50% of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of the acquisition. The purchase price will be equal to
85% of the market value per share on the start date of the offering period in
which the acquisition occurs or, if lower, 85% of the fair market value per
share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
. The plan will terminate no later than the last business day of July
2009.
. The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
Employment Contracts, Termination of Employment Arrangements and Change in
Control Arrangements
In March 1997, we entered into a letter agreement with Mr. Smith to serve as
our Vice President of Business Development and General Manager of Multi-Brand
Stores. Mr. Smith's base annualized salary for his services was $90,000.
Pursuant to the agreement, this base annualized salary was increased to
$135,000 when we completed a venture financing in June 1998. Additional terms
under the agreement are as follows.
. Mr. Smith received options to purchase 224,740 shares of our common
stock in March 1997 at an exercise price of $0.082 per share. Of these
options, 56,184 vested on July 1, 1997 and the remaining options are
vesting in a series of 36 monthly installments over the period of Mr.
Smith's service measured from July 1, 1997. These options will vest in
full if we complete an initial public offering or if we are acquired.
However, Mr. Smith will not receive accelerated vesting in connection
with an acquisition if the acceleration would make the acquisition
ineligible for selected accounting treatment.
. Mr. Smith also received options to purchase 156,666 shares of our common
stock in December 1997 at an exercise price of $ 0.082 per share. Of
these options, 39,166 vested on July 1, 1997, 39,166
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vested upon our closing of a venture financing in June, 1998 and the
remaining options are vesting thereafter in a series of equal monthly
installments of 3,263 shares until July 1, 2000.
In June 1998, we entered into an employment agreement with Mr. Harrington
to serve as our President, Chief Operating Officer and a member of our board
of directors. The agreement was amended in September 1999. Mr. Harrington's
base salary for his services was initially $150,000 per year and was increased
to $170,000 per year in 1999 when Mr. Harrington became our Chief Executive
Officer. Additional terms under the agreement are as follows.
. Mr. Harrington is eligible to receive a bonus of up to 20% of his base
salary based on the achievement of performance goals that are mutually
agreeable to Mr. Harrington and the board of directors.
. Mr. Harrington also received options to purchase 800,000 shares of our
common stock at an exercise price of $0.082 per share. The options are
vesting in 48 equal monthly installments over Mr. Harrington's period of
service with us. However, the options will become fully vested if we are
acquired and the successor corporation does not assume the options or if
Mr. Harrington is involuntarily terminated within 12 months following an
acquisition. In addition, if Mr. Harrington is terminated by us for any
reason other than cause at any time other than within 12 months
following an acquisition, he will receive a payment of $200,000 or one
full year of salary, whichever is greater, an additional 333,333 option
shares will accelerate and Mr. Harrington will provide services to us as
a consultant for a period of six months during which time he will
continue to vest in his remaining options.
Mr. Harrington's employment agreement terminates in September 2000 and
automatically renews for successive one year periods, unless terminated
earlier upon death, disability, notice from us, with or without cause, or
voluntary resignation.
In June 1998, we entered into an employment agreement with Mr. Chea to
serve as our Vice President of Technology. Mr. Chea's initial base salary for
his services was $90,000 and was increased to $110,000 per year in 1999 when
Mr. Chea became Vice President, Engineering. Additional terms under the
agreement are as follows.
. Mr. Chea is entitled to receive an annual bonus of up to 20% of his
annual base salary based on the achievement of performance goals.
. Mr. Chea received options to purchase 33,333 shares of our common stock
at an exercise price of $0.082 per share. Of these options, 8,333 vested
on January 1, 1999 and the remainder are vesting in a series of 36 equal
monthly installments thereafter over Mr. Chea's period of service with
us measured from January 1, 1999.
. Mr. Chea granted us the right to repurchase 333,333 shares of his Fogdog
Sports common stock at fair market value if he voluntarily terminates
his employment without good reason. The repurchase right lapses in 30
equal monthly installments over Mr. Chea's period of service with us.
However, the repurchase right lapses with respect to all of the shares
upon the completion of an initial public offering of our common stock,
if we are acquired, if Mr. Chea dies, becomes disabled or terminates his
employment for good cause, if we terminate his employment without cause
or if we hire a technology officer with a senior title, duties and
responsibilities.
. Mr. Chea is entitled to 12 weeks of severance pay if he is terminated
without cause or if he voluntarily departs with good reason.
Mr. Chea's employment agreement terminates in January 2001, unless terminated
earlier upon death, disability, notice from us with or without cause or if he
voluntary resigns.
In April 1999, we entered into an amended and restated employment agreement
with Mr. Allsop to serve as our President of International Division and
Chairman of the Board for a base salary of $105,000 per year.
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Pursuant to the agreement, Mr. Allsop's base salary was increased to $135,000
per year upon Mr. Allsop's relocation to our new London office. Additional
terms under the agreement are as follows.
. Mr. Allsop is entitled to receive a supplement of $8,000 to his base
salary to compensate him for the higher cost of living abroad.
. Mr. Allsop is eligible to receive a bonus of up to 20% of his base
salary upon achievement of performance goals mutually determined by Mr.
Allsop and our chief executive officer.
. Mr. Allsop granted us the right to repurchase 115,555 shares of his
Fogdog Sports common stock at fair market value if he voluntarily
terminates his employment without good reason. The repurchase right
lapses in 26 equal monthly installments over Mr. Allsop's period of
service with us. However, the repurchase right lapses with respect to
all of the shares upon the completion of an initial public offering of
our common stock, if we are acquired or if Mr. Allsop dies, becomes
disabled or terminates his employment for good cause.
. Mr. Allsop is also entitled to 26 additional weeks of salary if he is
terminated without cause.
Mr. Allsop's employment agreement terminates in June 2001, unless terminated
earlier upon death, disability, notice from us with or without cause or
voluntary resignation.
In August 1999, we entered into a letter agreement with Mr. Joyce to serve
as our President. Additional terms under the agreement are as follows.
. Mr. Joyce is entitled to a base salary of $280,000 per year.
. Mr. Joyce is also eligible to receive a target bonus of 20% of his base
salary with the opportunity to earn more through the attainment of
performance goals.
. Mr. Joyce is also entitled to receive options to purchase 666,666 shares
of our common stock, at an exercise price of $1.32 per share, which were
granted on August 26, 1999, and vest over a period of four years in a
series of 48 equal monthly installments over Mr. Joyce's continued
period of service with us. However, if we are acquired within one year
of the date of the agreement and the successor corporation does not
assume Mr. Joyce's options, the options will vest on an accelerated
basis such that 24 months worth of unvested options shall become vested.
. Mr. Joyce also received a grant of options to purchase 83,333 shares of
our common stock, at an exercise price of $1.32 per share, when Nike
USA, Inc. opened a retail account for its premium products with us in
September 1999, which options will vest fully six months from the date
of grant.
. Mr. Joyce is eligible for a reimbursement of $60,000 for relocation
expenses.
In September 1999, our board of directors approved a severance package for
Ms. von Lossberg. Pursuant to this severance package, she is entitled to three
months of salary if she is terminated without cause.
In November 1999, we entered into a letter agreement with Mr. Garrett to
serve as our Vice President, Finance. Additional terms under the agreement are
as follows:
. Mr. Garrett is entitled to a base salary of $240,000 per year.
. Mr. Garrett is also eligible to receive a target bonus of 20% of his
base salary with the opportunity to earn more through the attainment of
performance goals.
. Mr. Garrett is entitled to receive options to purchase 310,000 shares of
our common stock. These options will have an exercise price equal to the
fair market value of our common stock on the date of the grant. Of these
options, 38,750 options vest six months from his employment date, and
the remaining options vest in equal monthly installments of 6,458
options thereafter. However, if we are acquired within one year of Mr.
Garrett's first day of employment and the successor corporation does not
assume his options, the options will vest on an accelerated basis such
that 12 months worth of unvested options shall become vested.
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<PAGE>
Limitation of Liability and Indemnification
Our certificate of incorporation eliminates, to the maximum extent allowed
by the Delaware General Corporation Law, directors' personal liability to
Fogdog Sports or its stockholders for monetary damages for breaches of
fiduciary duties. The certificate of incorporation of Fogdog Sports does not,
however, eliminate or limit the personal liability of a director for the
following:
. any breach of the director's duty of loyalty to Fogdog Sports or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we have entered
into an indemnification agreement with each of our directors and executive
officers. The indemnification agreements contain provisions that require us,
among other things, to indemnify our directors and executive officers against
liabilities (other than liabilities arising from intentional or knowing and
culpable violations of law) that may arise by reason of their status or service
as directors or executive officers of Fogdog Sports or other entities to which
they provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could be indemnified. We
believe that these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified directors and officers.
Prior to the consummation of the offering, we will obtain an insurance
policy covering directors and officers for claims they may otherwise be
required to pay or for which we are required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES
Sales of Securities
Since January 1996, we have raised capital primarily through the sale of our
securities, including:
. In September 1996, we issued to various investors including Novus
Ventures, L.P., the Robert Maxfield Separate Property Trust and
Frederick Gibbons an aggregate of 1,155,554 shares of our Series A
preferred stock for an aggregate consideration of $974,999. At the time
of this transaction, Mr. Gibbons and Mr. Robert Maxfield became
directors of Fogdog, as did Mr. Dan Tompkins, a partner with Novus
Ventures.
. In September 1996, we issued and sold an aggregate of 221,164 shares of
common stock to Robert Maxfield, one of our directors, for an aggregate
consideration of $18,661.
. In September 1996, we issued and sold an aggregate of 110,581 shares of
common stock to Frederick M. Gibbons, one of our directors, for an
aggregate consideration of $9,330.
. In December 1997, we issued to Novus Ventures, L.P., Robert Maxfield and
Frederick Gibbons warrants to purchase an aggregate of 29,778 shares of
our Series A preferred stock at an exercise price of $0.844 per share,
17,778 of which shares were exercised in November 1999 by Novus
Ventures, L.P., and convertible promissory notes in aggregate principal
amount of $162,500 accruing interest at a rate of 8% per annum.
. In May 1998, we issued to Novus Ventures, L.P., Robert Maxfield and
Frederick Gibbons warrants to purchase an aggregate of 29,778 shares of
our Series A preferred stock at an exercise price of $0.844 per share,
17,778 of which shares were exercised in November 1999 by Novus
Ventures, L.P., and convertible promissory notes in aggregate principal
amount of $162,500 accruing interest at a rate of 8% per annum.
. In June 1998, Novus Ventures, L.P., Robert Maxfield and Frederick
Gibbons converted the principal of the convertible promissory notes, a
total of $325,000, into an aggregate of 434,622 shares of our Series B
preferred stock.
. In June 1998, we sold to various investors, including entities
affiliated with Draper Fisher Jurvetson Management and entities
affiliated with Whitney Equity Partners, an aggregate of 6,017,844
shares of our Series B preferred stock for an aggregate consideration of
$4,500,000, which included $75,000 of cancellation of indebtedness. At
the time of the transaction, Draper Fisher Jurvetson and Whitney Equity
Partners became greater than five percent stockholders of Fogdog, and
Draper Fisher Jurvetson and Whitney Equity Partners appointed
representatives to our Board of Directors.
. In March and April 1999, we sold to various investors, including Novus
Ventures, L.P., entities affiliated with Vertex Management, Inc.,
entities affiliated with Draper Fisher Jurvetson Management, entities
affiliated with Whitney Equity Partners, entities affiliated with Sprout
Group, entities affiliated with Marquette Ventures and entities
affiliated with Venrock Associates, an aggregate of 11,657,277 shares of
our Series C preferred stock for an aggregate consideration of
$18,000,000. At the time of the transaction, Vertex Management, Sprout
Group and Venrock Associates became greater than five percent
stockholders of Fogdog, and Sprout Group and Marquette Ventures and
Venrock Associates appointed representatives to our Board of Directors.
. In September 1999, we issued and sold 3,529,410 shares of our Series D
preferred stock for an aggregate purchase price of $15,300,000 to
entities affiliated with Draper Fisher Jurvetson, entities affiliated
with Whitney Equity Partners, entities affiliated with Venrock
Associates, entities affiliated with Sprout Group L.P., entities
affiliated with Marquette Venture Partners and Vertex Technologies Fund
(II) Ltd. We also sold Series D preferred stock to entities affiliated
with Worldview Technology Partners, Boston Millennia Partners, L.P.,
entities affiliated with Lycos Ventures, Hikari Tsushin, Inc., Aman
Ventures L.L.C., Peder Smedvig Capital Venture III and certain
individual investors which are neither officers, directors, nor greater
than five percent stockholders of our company.
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<PAGE>
In September 1999, we issued to Nike USA, Inc. a warrant to purchase an
aggregate of 4,114,349 shares of our Series C preferred stock at an exercise
price of $1.54 per share. Upon the consummation of our public offering, this
warrant will automatically become exercisable for 4,114,349 shares of our
common stock.
The following table summarizes the shares of common stock and preferred
stock purchased by our executive officers, directors and five percent
stockholders and persons associated with them since January 1996. The number of
total shares on an as-converted basis reflects a one-to-one conversion to
common stock ratio for each share of Series A, Series B, Series C and Series D
preferred stock.
<TABLE>
<CAPTION>
Warrants Warrants Total
to Purchase to Purchase Shares on
Series A Series B Series C Series D Series A Series C an As-
Common Preferred Preferred Preferred Preferred Preferred Preferred Converted
Investor Stock Stock Stock Stock Stock Stock Stock Basis
-------- --------- --------- --------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Draper Fisher Jurvetson
Management............. -- -- 2,942,058 1,100,964 276,816 -- -- 4,319,838
Entities affiliated with
Whitney Equity
Partners............... -- -- 3,075,788 1,100,964 196,078 -- -- 4,372,830
Novus Ventures.......... -- 983,704 267,460 323,813 -- -- -- 1,574,977
Entities affiliated with
Venrock Associates..... -- -- -- 2,849,556 196,079 -- -- 3,045,635
Entities affiliated with
Vertex Management,
Inc.................... -- -- -- 1,392,396 69,204 -- -- 1,461,600
Entities affiliated with
Sprout Group........... -- -- -- 2,558,124 173,010 -- -- 2,731,134
Nike USA, Inc. ......... -- -- -- -- -- -- 4,114,349 4,114,349
Timothy P. Harrington... 294,444 -- -- -- -- -- -- 294,444
Brett M. Allsop......... 1,133,333 -- -- -- -- -- -- 1,133,333
Marcy E. von Lossberg... 260,528 -- -- -- -- -- -- 260,528
Robert S. Chea.......... 1,150,694 -- -- -- -- -- -- 1,150,694
Frederick M. Gibbons.... 110,581 59,258 33,432 -- -- 5,333 -- 208,604
Robert R. Maxfield...... 221,164 118,518 133,728 -- -- 18,666 -- 492,076
</TABLE>
Holders of shares of our preferred stock and our common stock issued or
issuable upon conversion thereof and some holders of our common stock are
entitled to registration rights. See "Description of Capital Stock--
Registration Rights."
Agreement with Nike USA, Inc.
In September 1999, we entered into an agreement with Nike USA, Inc. pursuant
to which we have the right to market on our web site the generally available
Nike product lines, including Jordan, Bauer, Nike ACG, Nike Golf and Nike Team
Sports. We will receive a discount on the products we purchase. Under the
agreement, we also have advance product availability for mutually agreed upon,
newly released products. The agreement prohibits us from selling any of these
products to consumers with shipping addresses outside of the United States
unless Nike.com is allowed to sell in those countries and the sales do not
constitute a violation of any agreement with any third party. We also agreed to
use Nike USA as the exclusive supplier of Nike brand products, and Nike USA
agreed not to sell its products to any other retailer that sells only on the
Internet, except entities affiliated with Nike customers that derive the
majority of their revenue from traditional retail stores or entities that serve
as web sales outsourcing providers for these Nike customers through March 2000.
Nike USA may terminate the agreement at any time without cause upon 90 days
notice to us, but must pay us a termination fee if it exercises this right
prior to December 31, 2001. We also issued Nike USA a warrant to purchase
4,114,349 shares of our Series C preferred stock at an exercise price of $1.54
per share. Upon the consummation of this offering, this warrant will
automatically become exercisable for 4,114,349 shares of our common stock.
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<PAGE>
Agreements with Officers and Directors
In July 1995, we entered into an employment agreement with Ms. von Lossberg.
Pursuant to the terms of this agreement, we agreed to grant Ms. von Lossberg a
2.5% equity interest in the company after six months of employment and another
2.5% equity interest in December 1995. In August 1996, we entered into an
agreement with Ms. von Lossberg pursuant to which we issued 210,528 shares of
our common stock to Ms. von Lossberg in satisfaction of our obligations under
the prior employment agreement.
In August 1999, Mr. Harrington exercised vested options to purchase 294,444
shares of our common stock for an aggregate purchase price of $35,292. Mr.
Harrington exercised these options by issuing us a promissory note that is
secured by the stock.
In September 1999, Ms. von Lossberg exercised options to purchase 50,000
shares of our common stock for an aggregate purchase price of $4,192. Ms. von
Lossberg exercised these options by issuing us a promissory note that is
secured by the common stock.
We have entered into employment arrangements with our executive officers.
See "Management--Employment Contracts, Termination of Employment Arrangements
and Change in Control Arrangements."
We have granted options and issued common stock to our executive officers
and directors. See "Management--Executive Compensation" and "Principal
Stockholders."
We have entered into an indemnification agreement with each of our executive
officers and directors. See "Management--Limitation of Liability and
Indemnification."
We have entered into non-competition and confidentiality agreements with
some of our officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between the company and our officers, directors and principal stockholders and
their affiliates and any transactions between the company and any entity with
which our officers, directors or five percent stockholders are affiliated will
be approved by a majority of the board of directors, including a majority of
the independent and disinterested outside directors of the board of directors
and will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership of
our common stock as of September 30, 1999, by the following individuals or
groups:
. each person or entity who is known by us to own beneficially more than
5% of our outstanding stock;
. each of the named executive officers;
. each of our directors; and
. all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based on
29,665,236 shares of common stock outstanding as of September 30, 1999, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering into 23,425,333 shares of common stock. For
purposes of calculating each stockholder's percentage ownership, all options
and warrants exercisable within 60 days of September 30, 1999 held by the
particular stockholder and that are included in the first column are treated as
outstanding shares. The numbers shown in the table below assume no exercise by
the underwriters of their over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Fogdog, Inc., 500 Broadway, Redwood City, California
94063. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares ------------------------
Beneficially Prior After
Name and Address of Beneficial Owner Owned to Offering the Offering
------------------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
Entities affiliated with Whitney Equity
Partners(1)............................ 4,372,830 14.7% 12.2%
Entities affiliated with Draper Fisher
Jurvetson(2)........................... 4,319,838 14.6 12.1
Nike USA, Inc.(3)....................... 4,114,349 12.2 10.3
Entities affiliated with Sprout Group,
L.P.(5)................................ 2,731,135 9.2 7.7
Entities affiliated with Venrock
Associates(4).......................... 3,045,635 10.3 8.5
Timothy P. Harrington(6)................ 1,333,333 4.3 3.6
Brett M. Allsop(7)...................... 1,160,000 3.9 3.2
Marcy E. von Lossberg(8)................ 377,199 1.3 1.0
Robin R. Smith(9)....................... 421,406 1.4 1.2
Robert S. Chea(10)...................... 1,200,000 4.0 3.4
Frederick M. Gibbons(11)................ 208,605 * *
Peter J. Huff(1)........................ 4,372,830 14.7 12.2
Robert R. Maxfield(12).................. 492,079 1.7 1.4
Warren J. Packard(2).................... 4,319,838 14.6 12.1
Ralph T. Parks(13)...................... 26,666 * *
Lloyd D. Ruth(14)....................... 1,086,780 3.7 3.0
Ray A. Rothrock(4)...................... 3,045,636 10.3 8.5
All directors and executive officers as
a group (13 persons)(15)............... 18,794,370 58.5 49.3
</TABLE>
- --------
* Less than one percent.
(1) Principal address is 177 Broad Street, Stamford, CT 06901. Represents
4,269,942 shares of common stock held by J.H. Whitney III, L.P. and
102,888 shares of common stock held by Whitney Strategic Partners III,
L.P. Mr. Huff disclaims beneficial ownership of all of these shares except
to the extent of his pecuniary interest in entities affiliated with
Whitney Equity Partners.
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<PAGE>
(2) Principal address is 400 Seaport Court, Suite 250, Redwood City, CA 94063.
Represents 4,017,450 shares of common stock held by Draper Fisher
Associates Fund IV, L.P. and 283,011 shares of common stock and 19,377
shares of common stock held by Draper Fisher Partners IV, L.P. Mr. Packard
disclaims beneficial ownership of all of these shares except to the extent
of his pecuniary interest in entities affiliated with Draper Fisher
Jurvetson.
(3) Principal address is One Bowerman Drive, Beaverton, OR 97005. Represents
warrants held by Nike USA, Inc. to purchase 4,114,349 shares of common
stock at an exercise price of $1.54 per share.
(4) Principal address is 2494 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
Represents 1,248,710 shares of common stock held by Venrock Associates and
1,796,925 shares of common stock held by Venrock Associates II, L.P. Mr.
Rothrock disclaims beneficial ownership of all of these shares except to
the extent of his pecuniary interest in entities affiliated with Venrock
Associates.
(5) Principal address is 3000 Sand Hill Road, Building 3, Suite 170, Menlo
Park, CA 94025-7114. Includes 7,914 shares of common stock held by DLJ
Capital Corp., 206,432 shares of common stock held by DLJ ESC II, L.P.,
2,372,288 shares of common stock held by Sprout Capital VIII, L.P. and
142,338 shares of common stock held by Sprout Venture Capital, L.P.
(6) Includes 1,038,888 shares of common stock issuable upon the exercise of
immediately exercisable options.
(7) Includes 66,666 shares of common stock issuable upon the exercise of
immediately exercisable options.
(8) Includes 116,666 shares of common stock issuable upon the exercise of
immediately exercisable options.
(9) Includes 421,406 shares of common stock issuable upon the exercise of
immediately exercisable options.
(10) Includes 49,306 shares of common stock issuable upon the exercise of
immediately exercisable options.
(11) Principal address is 11800 Murieta Lane, Los Altos Hills, CA 94022.
Includes warrants to purchase 5,333 shares of common stock at an exercise
price of $0.8438 per share.
(12) Principal address is 12930 Saratoga Avenue, Suite B-3, Saratoga, CA 95070.
Includes warrants to purchase 18,666 shares of common stock at an exercise
price of $0.8438 per share.
(13) Represents 26,666 shares of common stock issuable upon the exercise of
immediately exercisable options.
(14) Principal address is 520 Lake Cook Road, Suite 450, Deerfield, IL 60015.
Represents 1,086,780 shares of common stock held by Marquette Venture
Partners III, L.P. Mr. Ruth disclaims beneficial ownership of all of these
shares except to the extent of his pecuniary interest in Marquette Venture
Partners III, L.P.
(15) Includes 2,469,601 shares of common stock issuable upon the exercise of
options and warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
At the closing of this offering, we will be authorized to issue 100,000,000
shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated
preferred stock, $0.001 par value, after giving effect to the amendment of our
certificate of incorporation to delete references to the existing preferred
stock following conversion of that stock. The following description of capital
stock gives effect to the certificate of incorporation to be filed upon closing
of this offering. Immediately following the completion of this offering, and
assuming no exercise of the underwriters' over-allotment option, based on the
number of shares outstanding as of September 30, 1999, an aggregate of
35,665,236 shares of common stock will be issued and outstanding, and no shares
of preferred stock will be issued and outstanding.
The following description of our capital stock is subject to and qualified
by our certificate of incorporation and bylaws, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of the applicable Delaware law.
Common Stock
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock that may come into existence,
the holders of common stock are entitled to receive ratably those dividends, if
any, as may be declared from time to time by the board of directors out of
funds legally available for dividends. See "Dividend Policy." In the event of
our liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Our common stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be outstanding
upon completion of this offering will be fully paid and nonassessable.
Preferred Stock
Our board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend,
redemption, conversion and exchange provisions as may be provided in the
particular series. Any series of preferred stock may possess voting, dividend,
liquidation and redemption rights superior to those of the common stock. The
rights of the holders of our common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of entrenching our board of
directors and making it more difficult for a third-party to acquire, or
discourage a third-party from acquiring, a majority of our outstanding voting
stock. We have no present plans to issue any shares of or designate any series
of preferred stock.
Warrants
At September 30, 1999, there were warrants outstanding to purchase a total
of 4,319,131 shares of our common stock expiring through March 2003.
Registration Rights
Upon completion of the offering, the holders of an aggregate of
approximately 27,533,333 shares of common stock and warrants to purchase
approximately 4,133,333 shares of our common stock will be entitled to certain
rights with respect to the registration of the shares under the Securities Act.
Nike USA, Inc. has three
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<PAGE>
separate demand registration rights. These rights are provided under the terms
of agreements between us and the holders of these securities. If we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, these holders are entitled to notice of the registration and are
entitled to include shares of common stock in the registration. The rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering subject to the registration to limit the number of shares
included in the registration. Holders of these rights may also require us to
file a registration statement under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use our best
efforts to effect the registration, subject to conditions and limitations.
Furthermore, stockholders with registration rights may require us to file
additional registration statements on Form S-3, subject to conditions and
limitations.
Compliance with California Law
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect some members of the board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:
. enables removal of directors with or without cause with majority
stockholder approval;
. places limitations on the distribution of dividends;
. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
Our certificate of incorporation authorizes our board to establish one or
more series of undesignated preferred stock, the terms of which can be
determined by our board at the time of issuance. See "--Preferred Stock." Our
certificate of incorporation also provides that all stockholder action must be
effected at a duly called meeting of stockholders and not by written consent.
In addition, our certificate of incorporation and bylaws do not permit our
stockholders to call a special meeting of stockholders. Only our Chief
Executive Officer, President, Chairman of the Board or a majority of the board
of directors are permitted to call a special meeting of stockholders. Our
certificate of incorporation also provides that the board of directors is
divided into three classes, with each director assigned to a class with a term
of three years, and that the number of directors may only be determined by the
board of directors. Our bylaws require that stockholders give advance notice to
our secretary of any nominations for director or other business to be brought
by stockholders at any stockholders' meeting, and that the chairman of the
board has the authority to adjourn any meeting called by the stockholders. Our
bylaws also require a supermajority vote of members of the board of directors
and/or
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<PAGE>
stockholders to amend certain bylaw provisions. These provisions of our
restated certificate of incorporation and our bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
company. These provisions also may have the effect of preventing changes in the
management of the company. See "Risk Factors--Provisions of our certificate of
incorporation and bylaws may make changes of control difficult, even if they
would be beneficial to stockholders."
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
. prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by:
(i) persons who are directors and also officers; and
(ii) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
. on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Transfer Agent and Registrar
Our transfer agent and registrar for our common stock is Equiserve L.P. Its
telephone number is (781) 575-2469.
75
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and we cannot predict the effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale
will have on the market price of common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of our common stock in the public
market could adversely affect the market price of our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the completion of this offering we will have 35,665,236 shares of
common stock outstanding assuming no exercise of the underwriters' over-
allotment option. The number of shares of common stock to be outstanding after
this offering is based on the number of shares outstanding as of September 30,
1999, and excludes:
. 4,502,885 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 1999 at a weighted average
exercise price of $1.05 per share, all of which are immediately
exercisable; however, those shares which have not yet vested are subject
to repurchase by the company;
. 6,296,631 shares of common stock reserved for issuance under our 1999
Stock Incentive Plan that incorporates our Amended and Restated 1996
Stock Option Plan;
. 500,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan;
. 4,114,349 shares of common stock issuable upon exercise of an
outstanding warrant held by Nike USA, Inc. of an exercise price of $1.54
per share; and
. 204,782 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $1.97 per share.
Of the outstanding shares, all of the shares sold in this offering will be
freely tradable, except that any shares held by our "affiliates," as that term
is defined in Rule 144 promulgated under the Securities Act, may only be sold
in compliance with the limitations described below. The remaining 29,602,871
shares of common stock will be deemed "restricted securities" as defined under
Rule 144. Restricted shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k)
or 701 promulgated under the Securities Act, which rules are summarized below.
Subject to the lock-up agreements described below and the provisions of Rules
144, 144(k) and 701, additional shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ------------------------------------------------------------------
<C> <S>
6,062,366 After the date of this prospectus, freely tradable shares sold in
this offering and shares saleable under Rule 144(k) that are not
subject to the 180-day lock-up
24,569,910 After 180 days from the date of this prospectus, the 180-day lock-
up is released and these shares are saleable under Rule 144
(subject, in some cases, to volume limitations) or Rule 144(k)
1,236,885 After 180 days from the date of this prospectus, the 180-day lock-
up is released and these shares are saleable under Rule 701
(subject to repurchase by the Company)
3,796,076 After 180 days from the date of this prospectus, restricted
securities that are held for less than one year and are not yet
saleable under Rule 144
</TABLE>
Rule 144
In general, under Rule 144 as currently in effect, a person, or group of
persons whose shares are required to be aggregated, including any of our
affiliates, who has beneficially owned shares for at least one year, including
the holding period of any prior owner who is not an affiliate, is entitled to
sell within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed
76
<PAGE>
the greater of one percent of the then-outstanding shares of our common stock,
which will be approximately 356,000 shares immediately after this offering, or
the average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of such sale is filed, subject to
certain restrictions. In addition, a person who is not deemed to have been an
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an affiliate, would
be entitled to sell these shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from one
of our affiliates, a person's holding period for the purpose of effecting a
sale under Rule 144 would commence on the date of transfer from the affiliate.
Stock Options
As of September 30, 1999, options to purchase a total of 4,502,885 shares of
common stock were outstanding, all of which were currently exercisable but were
subject to repurchase upon termination of employment until vested. We intend to
file a Form S-8 registration statement under the Securities Act to register all
shares of common stock issuable under our 1999 Stock Incentive Plan and our
1999 Employee Stock Purchase Plan. Accordingly, shares of common stock
underlying these options will be eligible for sale in the public markets,
subject to vesting restrictions or the lock-up agreements described below. See
"Management--Benefit Plans."
Lock-up Agreements
We have agreed, and each of our officers and directors and substantially all
of our securityholders have agreed, subject to specified exceptions, not to,
without the prior written consent of Credit Suisse First Boston Corporation,
sell, otherwise dispose of any shares of our common stock or options to acquire
shares of our common stock or take any action to do any of the foregoing during
the 180-day period following the date of this prospectus. Credit Suisse First
Boston Corporation may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements. In
addition, pursuant to the terms of its warrant, Nike USA agreed that it would
sell no more than a specified percentage of the stock issuable upon exercise of
the warrant at each of the first, second and third year anniversaries of the
warrant. Further, pursuant to the terms of the warrant that we issued to an
individual in September 1999, this individual agreed that he would sell no more
than a specified percentage of the stock issuable upon exercise of the warrant
at each six month interval for the first two years that he holds the warrant.
See "Underwriting."
Following this offering, under specified circumstances and subject to
customary conditions, holders of approximately 27,533,333 shares of our
outstanding common stock and warrants to purchase approximately 4,133,333
shares of our common stock will have registration rights with respect to their
shares of common stock, subject to the 180-day lock-up arrangement described
above, to require us to register their shares of common stock under the
Securities Act. If the holders of these registrable securities request that we
register their shares, and if the registration is effected, these shares will
become freely tradable without restriction under the Securities Act. Any sales
of securities by these stockholders could have a material adverse effect on the
trading price of our common stock. See "Description of Capital Stock--
Registration Rights."
77
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, J.P. Morgan Securities
Inc., Thomas Weisel Partners LLC and Warburg Dillon Read LLC are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
J.P. Morgan Securities Inc..................................
Thomas Weisel Partners LLC..................................
Warburg Dillon Read LLC.....................................
---------
Total..................................................... 6,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ 0.25 $ 0.22 $1,500,000 $1,500,000
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and substantially all of our existing
stockholders and option holders have agreed not to offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act of 1933 relating to, any shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our
common stock, or publicly disclose the intention to make any such offer, sale,
pledge, disposition or filing, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in our case issuances pursuant to the exercise of employee
stock options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price, up to 510,000 shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an
78
<PAGE>
interest in purchasing common stock in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We have agreed to indemnify the underwriters against certain liabilities
under the Securities Act of 1933, or to contribute to payments which the
underwriters may be required to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "FOGD."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
. the information included in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has acted as lead or co-manager on over
60 public offerings of equity securities that have been completed. Thomas
Weisel Partners does not have any material relationship with us or any of our
officers, directors or other controlling persons, except with respect to its
contractual relationship with us pursuant to the underwriting agreement entered
into in connection with this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
79
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of the common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or such persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any common stock acquired by such purchaser pursuant to this offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one
such report must be filed in respect of common stock acquired on the same date
and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the common stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
80
<PAGE>
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. Attorneys at the firm
of Brobeck, Phleger & Harrison LLP beneficially own an aggregate of 22,867
shares of our common stock. Pillsbury Madison & Sutro LLP, San Francisco and
Palo Alto, California, is acting as counsel for the underwriters in connection
with selected legal matters relating to the shares of common stock offered by
this prospectus.
EXPERTS
The financial statements of Fogdog, Inc. as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Sports Universe, Inc. as of December 31, 1998
and for the period from February 9, 1998 (inception) through December 31, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating
to the common stock offered. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to us and the shares we are
offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement. You may read or obtain a copy of the registration statement at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the commission at 1-800-SEC-0330. The commission maintains a web
site that contains reports, proxy information statements and other information
regarding registrants that file electronically with the commission. The address
of this web site is http://www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited condensed financial information for the first three quarters of each
fiscal year. We intend to furnish other reports as we may determine or as may
be required by law.
81
<PAGE>
FOGDOG, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FOGDOG, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to the Consolidated Financial Statements............................. F-7
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Pro Forma Consolidated Financial Information............................... F-24
Pro Forma Consolidated Statements of Operations............................ F-25
Notes to the Pro Forma Consolidated Financial Information.................. F-27
SPORTS UNIVERSE, INC. FINANCIAL STATEMENTS
Report of Independent Accountants.......................................... F-28
Balance Sheet.............................................................. F-29
Statement of Operations.................................................... F-30
Statement of Stockholders' Deficit......................................... F-31
Statement of Cash Flows.................................................... F-32
Notes to the Financial Statements.......................................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Fogdog, Inc.
The reincorporation and stock split described in Note 11 to the
consolidated financial statements have not been consummated as of November 18,
1999. When the reincorporation and stock split have been completed, we will be
in position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' equity
(deficit), and of cash flows present fairly, in all material respects, the
financial position of Fogdog, Inc. at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
April 28, 1999,
except for Note 11, which
is as of November , 1999
F-2
<PAGE>
FOGDOG, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- September 30, September 30,
1997 1998 1999 1999
------- ------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 311 $ 1,694 $ 21,880
Short-term investments......... -- 423 --
Accounts receivable, net of
allowances of $5, $35 and $96,
respectively.................. 93 75 205
Merchandise inventory.......... -- -- 722
Prepaid expenses and other
current assets................ 14 132 733
------- ------- --------
Total current assets......... 418 2,324 23,540
Property and equipment, net...... 162 470 1,621
Intangible assets, net........... -- 46 2,480
Other assets, net................ -- -- 29,650
------- ------- --------
Total assets..................... $ 580 $ 2,840 $ 57,291
======= ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............... $ 60 $ 705 $ 2,841
Notes payable to stockholders.. 155 -- --
Current portion of long-term
debt.......................... 252 606 554
Other current liabilities...... 123 423 2,214
------- ------- --------
Total current liabilities.... 590 1,734 5,609
Long-term debt, less current
portion......................... 3 189 342
Commitments and contingencies
(Note 5)
Stockholders' equity (deficit):
Convertible Preferred Stock,
issuable in series, $0.001 par
value, 14,200 and 41,797
shares authorized at
December 31, 1998 and
September 30, 1999
(unaudited), respectively;
1,786, 8,239 and 23,425 shares
issued and outstanding at
December 31, 1997 and 1998 and
September 30, 1999
(unaudited), respectively;
5,000 shares authorized; no
shares issued and outstanding
pro forma (unaudited)......... 2 8 24 $ --
Common Stock, $0.001 par value,
50,000 and 72,000 shares
authorized at December 31,
1998 and September 30, 1999
(unaudited), respectively;
4,547, 4,886 and 6,240 shares
issued and outstanding at
December 31, 1997, 1998 and
September 30, 1999
(unaudited), respectively;
100,000 shares authorized;
29,665 (unaudited) shares
issued and outstanding pro
forma......................... 5 5 6 30
Additional paid-in capital..... 1,642 7,664 82,592 82,592
Notes receivable............... -- -- (94) (94)
Unearned stock-based
compensation.................. -- (978) (10,270) (10,270)
Accumulated deficit............ (1,662) (5,782) (20,918) (20,918)
------- ------- -------- --------
Total stockholders' equity
(deficit)................... (13) 917 51,340 $ 51,340
------- ------- -------- ========
Total liabilities and
stockholders' equity (deficit).. $ 580 $ 2,840 $ 57,291
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
------------------------ -----------------
1996 1997 1998 1998 1999
------ ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Merchandise.................... $ -- $ -- $ 195 $ -- $ 2,542
Commission..................... -- 11 123 69 35
Web development................ 677 1,030 447 447 --
------ ------- ------- ------- --------
Total net revenues........... 677 1,041 765 516 2,577
------ ------- ------- ------- --------
Cost of revenues:
Merchandise.................... -- -- 157 -- 2,070
Commission..................... -- -- 19 12 --
Web development................ 90 156 99 99 --
------ ------- ------- ------- --------
Total cost of revenues....... 90 156 275 111 2,070
------ ------- ------- ------- --------
Gross profit..................... 587 885 490 405 507
------ ------- ------- ------- --------
Operating expenses:
Marketing and sales............ 686 1,285 2,399 997 10,807
Site development............... 119 259 1,318 737 2,205
General and administrative..... 248 378 705 457 1,181
Amortization of intangible
assets........................ -- -- -- -- 144
Amortization of stock-based
compensation.................. -- -- 243 125 1,582
------ ------- ------- ------- --------
Total operating expenses..... 1,053 1,922 4,665 2,316 15,919
------ ------- ------- ------- --------
Operating loss................... (466) (1,037) (4,175) (1,911) (15,412)
Interest income (expense), net... (3) (8) 29 2 276
Other income..................... -- -- 26 26 --
------ ------- ------- ------- --------
Net loss......................... (469) (1,045) (4,120) (1,883) (15,136)
Deemed preferred stock dividend.. -- -- -- -- (12,918)
------ ------- ------- ------- --------
Net loss available to common
stockholders.................... $ (469) $(1,045) $(4,120) $(1,883) $(28,054)
====== ======= ======= ======= ========
Basic and diluted net loss per
share available to common
stockholders.................... $(0.13) $ (0.23) $ (0.95) $ (0.43) $ (6.04)
====== ======= ======= ======= ========
Basic and diluted weighted
average shares used in
computation of net loss per
share available to common
stockholders.................... 3,631 4,544 4,323 4,391 4,645
====== ======= ======= ======= ========
Pro forma basic and diluted net
loss per share (unaudited)...... $ (0.43) $ (1.33)
======= ========
Pro forma basic and diluted
weighted average shares
(unaudited)..................... 9,622 21,058
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Total
Stock Common Stock Additional Unearned Stockholders'
------------- ------------- Paid-In Notes Stock-Based Accumulated Equity
Shares Amount Shares Amount Capital Receivable Compensation Deficit (Deficit)
------ ------ ------ ------ ---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... -- $ -- 3,211 $ 4 $ 122 $ -- $ -- $ (148) $ (22)
Issuance of Series A
Preferred Stock, net... 1,155 1 -- -- 944 -- -- -- 945
Issuance of Common
Stock.................. -- -- 1,331 1 27 -- -- -- 28
Net loss................ -- -- -- -- -- -- -- (469) (469)
------ ---- ----- --- ------- ---- -------- -------- -------
Balance at December 31,
1996................... 1,155 1 4,542 5 1,093 -- -- (617) 482
Issuance of Series A
Preferred Stock, net... 631 1 -- -- 527 -- -- -- 528
Issuance of warrants to
purchase Series A
Preferred Stock........ -- -- -- -- 21 -- -- -- 21
Issuance of Common
Stock.................. -- -- 5 -- 1 -- -- -- 1
Net loss................ -- -- -- -- -- -- -- (1,045) (1,045)
------ ---- ----- --- ------- ---- -------- -------- -------
Balance at December 31,
1997................... 1,786 2 4,547 5 1,642 -- -- (1,662) (13)
Issuance of Series B
Preferred Stock, net... 6,453 6 -- -- 4,774 -- -- -- 4,780
Issuance of Common
Stock.................. -- -- 292 -- 23 -- -- -- 23
Unearned stock-based
compensation........... -- -- -- -- 1,221 -- (1,221) -- --
Amortization of stock-
based compensation..... -- -- -- -- -- -- 243 -- 243
Issuance of Common Stock
for services........... -- -- 47 -- 4 -- -- -- 4
Net loss................ -- -- -- -- -- -- -- (4,120) (4,120)
------ ---- ----- --- ------- ---- -------- -------- -------
Balance at December 31,
1998................... 8,239 8 4,886 5 7,664 -- (978) (5,782) 917
Issuance of Series C
Preferred Stock, net
(unaudited)............ 11,657 12 -- -- 17,911 -- -- -- 17,923
Issuance of Series D
Preferred Stock, net
(unaudited)............ 3,529 4 -- -- 14,646 (50) -- -- 14,600
Issuance of Common Stock
(unaudited)............ -- -- 940 1 231 (44) -- -- 188
Common Stock issued for
acquired business
(unaudited)............ -- -- 267 -- 2,132 -- -- -- 2,132
Unearned stock-based
compensation
(unaudited)............ -- -- -- -- 10,874 -- (10,874) -- --
Amortization of stock-
based compensation
(unaudited)............ -- -- -- -- -- -- 1,582 -- 1,582
Issuance of warrants to
purchase Series C
Preferred Stock
(unaudited)............ -- -- -- -- 28,840 -- -- -- 28,840
Issuance of warrants to
purchase shares of
Common Stock
(unaudited)............ -- -- -- -- 184 -- -- -- 184
Issuance of Common Stock
upon exercise of
warrants (unaudited)... -- -- 147 -- 110 -- -- -- 110
Allocation of discount
on Preferred Stock
(unaudited)............ -- -- -- -- 12,918 -- -- -- 12,918
Deemed Preferred Stock
dividend (unaudited)... -- -- -- -- (12,918) -- -- -- (12,918)
Net loss (unaudited).... -- -- -- -- -- -- -- (15,136) (15,136)
------ ---- ----- --- ------- ---- -------- -------- -------
Balance at September 30,
1999 (unaudited)....... 23,425 $ 24 6,240 $ 6 $82,592 $(94) $(10,270) $(20,918) $51,340
====== ==== ===== === ======= ==== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FOGDOG, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
----------------------- -----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(469) $(1,045) $(4,120) $(1,883) $(15,136)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Allowances for bad debt and
sales returns................. -- -- 30 20 80
Depreciation and amortization.. 44 105 122 76 242
Amortization of intangible
assets........................ -- -- -- -- 144
Amortization of stock-based
compensation.................. -- -- 243 125 1,582
Non-employee stock-based
expense....................... -- -- 4 -- 475
Changes in assets and
liabilities:
Accounts payable and other
current liabilities......... 80 27 945 340 3,476
Accounts receivable.......... (26) (17) (12) 2 (210)
Other assets................. (18) 8 -- -- (1,084)
Merchandise inventory........ -- -- -- -- (722)
Prepaid expenses and other
current assets.............. (10) 7 (164) (152) (601)
----- ------- ------- ------- --------
Net cash used in operating
activities................ (399) (915) (2,952) (1,472) (11,754)
----- ------- ------- ------- --------
Cash flows from investing
activities:
Purchase of property and
equipment....................... (137) (81) (269) (193) (1,393)
Sale of (purchase of) short-term
investments..................... -- -- (423) (423) 423
----- ------- ------- ------- --------
Net cash used in investing
activities................ (137) (81) (692) (616) (970)
----- ------- ------- ------- --------
Cash flows from financing
activities:
Proceeds from the sale of Common
Stock........................... 28 -- 23 9 298
Proceeds from the sale of
Preferred Stock................. 945 528 4,455 4,455 32,523
Proceeds from (payments under)
term loan....................... 35 (70) 266 129 599
Payments under capital leases.... (14) (21) (15) (15) (3)
Proceeds from (payments under)
line of credit.................. -- 237 186 186 (423)
Payments under software loan..... -- -- (58) -- (84)
Proceeds from (payments under)
notes payable to stockholders... (23) 162 170 170 --
----- ------- ------- ------- --------
Net cash provided by
financing activities...... 971 836 5,027 4,934 32,910
----- ------- ------- ------- --------
Net increase (decrease) in cash and
cash equivalents.................. 435 (160) 1,383 2,846 20,186
Cash and cash equivalents at the
beginning of the period........... 36 471 311 311 1,694
----- ------- ------- ------- --------
Cash and cash equivalents at the
end of the period................. $ 471 $ 311 $ 1,694 $ 3,157 $ 21,880
===== ======= ======= ======= ========
Supplemental disclosure of cash
flow information:
Interest paid.................... $ 6 $ 14 $ 57 $ 29 $ 67
===== ======= ======= ======= ========
Supplemental disclosure of noncash
transactions:
Conversion of note to Series B
Preferred Stock................. $ -- $ -- $ 325 $ 325 $ --
===== ======= ======= ======= ========
Software purchased under loan
agreement....................... $ -- $ -- $ 161 $ 19 $ --
===== ======= ======= ======= ========
Issuance of stock in exchange for
notes .......................... $ -- $ -- $ -- $ -- $ 94
===== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 1--The Company and Summary of Significant Accounting Policies:
The Company
Fogdog, Inc. (the "Company") is an online retailer of sporting goods. The
Company's online retail store, "fogdog.com," offers products, detailed product
information and personalized shopping services. During 1997 and 1998, the
Company also provided web development services to sporting goods manufacturers,
trade associations and retailers. The Company was incorporated in California in
October 1994 as Cedro Group, Inc. and in November 1998, changed its name to
Fogdog, Inc.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Sports Universe, Inc. All significant
intercompany accounts have been eliminated.
Unaudited interim results
The interim consolidated financial statements as of September 30, 1999 and
for the nine months ended September 30, 1998 and 1999 are unaudited. In the
opinion of management, these interim consolidated financial statements have
been prepared on the same basis as the audited financial statements and reflect
all adjustments, consisting only of normal, recurring adjustments necessary for
the fair presentation of the results of interim periods. The financial data and
other information disclosed in these notes to the consolidated financial
statements for the related periods are unaudited. The results of the interim
periods are not necessarily indicative of the results to be expected for any
future periods.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Short-term investments
The Company's investments are classified as available-for-sale. Unrealized
gains or losses have been insignificant for all periods.
Merchandise inventory
Inventory is stated at the lower of cost or market, determined on a first-
in, first-out basis.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally three years, or the remaining lease term.
Web development costs
Web development costs primarily consist of costs to develop software which
enables users to access information on the customer's web site. Web development
costs incurred prior to technological feasibility
F-7
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
are expensed as incurred and are included in site development expense. The
Company defines establishment of the technological feasibility as the
completion of a working model. Software development costs incurred subsequent
to the establishment of technological feasibility throughout the period of
market availability of the web site are capitalized. Costs eligible for
capitalization have been insignificant for all periods presented.
Intangible assets
Purchased intangible assets are presented at cost, net of accumulated
amortization, and are amortized using the straight line method over the
estimated useful life of the assets. At each balance sheet date, the Company
assesses the value of recorded intangible assets for possible impairment in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," ("SFAS 121"), based upon a number of factors including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows. Since inception, the Company has not recorded any
provisions for possible impairment of intangible assets. In October 1998, the
Company purchased the mailing list, Internet domain name and client database
from Sportscape.com for $55,000. The Company is amortizing the balance over a
twelve month period.
Revenue recognition
Merchandise revenue is earned by the Company from the sale of sporting goods
through its online retail store. Merchandise revenue is recognized upon the
shipment of the merchandise, which occurs only after credit card authorization
is obtained. For sales of merchandise, the Company is responsible for
establishing prices, processing the orders, and forwarding the information to
the manufacturer, distributor or third-party warehouse for shipment. For these
transactions, the Company assumes credit risk and is responsible for processing
returns. The Company provides for estimated returns at the time of shipment
based on historical data.
Commission revenue was earned by the Company from catalog partners for
transactions processed through the Company's online retail store. Revenue was
recognized when the order was transmitted to the catalog partner. In commission
sales, the Company processed orders in exchange for a commission on the sale of
the vendor's merchandise. At the conclusion of the sale, the Company forwarded
the order information to the vendor, which then charged the customer's credit
card and shipped the merchandise directly to the customer. In a commission sale
transaction, the Company did not take title or possession of the merchandise,
and the vendor assumed all the risk of credit card chargebacks. The Company
also earned commission revenue from transactions processed on several client
sites. Commission revenue from these transactions has been immaterial to date.
Revenue from web development services was recognized when the client's site
had either been placed on-line or completed to the client's satisfaction, the
Company had the right to invoice the customer, collection of the receivable was
probable and there were no significant obligations remaining.
Advertising costs
Advertising costs are expensed as in accordance with Statement of Position
93-7, "Reporting on Advertising Costs." Advertising expense for the years ended
December 31, 1996, 1997, 1998 and the nine months ended September 30, 1998 and
1999 were $12,000, $64,000, $541,000, $154,000, and $3.9 milion, respectively.
F-8
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Site development costs
Site development costs include costs incurred by the Company to develop and
enhance the Company's web site. Site development costs are expensed as
incurred.
Net loss per share
Basic net loss per share available to common stockholders is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the
period. Diluted net loss per share available to common stockholders is computed
by dividing the net loss available to common stockholders for the period by the
weighted average number of common and potential common equivalent shares
outstanding during the period. The calculation of diluted net loss per share
excludes potential common shares if the effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights,
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and incremental shares of Common Stock issuable upon conversion of
Preferred Stock. For the nine months ended September 30, 1999, net loss per
share available to common stockholders includes a charge of $12.9 million to
reflect the deemed preferred stock dividend recorded in connection with the
Series D Preferred Stock financing.
The following table sets forth the computation of basic and diluted net loss
per share available to common stockholders for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
------------------------ -----------------
1996 1997 1998 1998 1999
------ ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss...................... $ (469) $(1,045) $(4,120) $(1,883) $(15,136)
Deemed Preferred Stock
dividend..................... -- -- -- -- (12,918)
------ ------- ------- ------- --------
Net loss available to Common
Stockholders................. $ (469) $(1,045) $(4,120) $(1,883) $(28,054)
====== ======= ======= ======= ========
Denominator:
Weighted average shares....... 3,631 4,544 4,728 4,691 5,117
Weighted average Common Stock
subject to repurchase
agreements................... -- -- (405) (300) (472)
------ ------- ------- ------- --------
Denominator for basic and
diluted calculation.......... 3,631 4,544 4,323 4,391 4,645
====== ======= ======= ======= ========
Basic and diluted net loss per
share available to common
stockholders................. $(0.13) $ (0.23) $ (0.95) $ (0.43) $ (6.04)
====== ======= ======= ======= ========
</TABLE>
F-9
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net loss per share available
to common stockholders calculation above because to do so would be antidilutive
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
---------------- --------------
1996 1997 1998 1998 1999
---- ----- ----- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average effect of dilutive
securities:
Series A Preferred Stock.................. 177 777 1,786 1,786 1,786
Series B Preferred Stock.................. -- -- 3,513 2,509 6,452
Series C Preferred Stock.................. -- -- -- -- 8,097
Series D Preferred Stock.................. -- -- -- -- 78
Warrants to purchase Series A Preferred
Stock.................................... -- 1 78 74 89
Warrants to purchase Series C Preferred
Stock.................................... -- -- -- -- 196
Warrants to purchase Common Stock......... -- -- -- -- 54
Employee stock options.................... -- 524 810 587 1,601
Common Stock subject to repurchase
agreements............................... -- -- 405 300 472
--- ----- ----- ------ -------
177 1,302 6,592 5,256 18,825
=== ===== ===== ====== =======
</TABLE>
Income taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year. A deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any benefits
that, based on available evidence, are not expected to be realized.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
nine months ended September 30, 1999 is computed using the weighted average
number of common shares outstanding, including the conversion of the Company's
Convertible Preferred Stock into shares of the Company's Common Stock effective
upon the closing of the Company's initial public offering, as if such
conversion occurred at January 1, 1998 or at date of original issuance, if
later. The resulting unaudited pro forma adjustment includes an increase in the
weighted average shares used to compute basic and diluted net loss per share of
5,299,000 and 16,413,000 for the year ended December 31, 1998 and the nine
months ended September 30, 1999, respectively. The calculation of pro forma
diluted net loss per share excludes Common Stock subject to repurchase
agreements and incremental Common Stock issuable upon the exercise of stock
options and warrants as the effect would be antidilutive.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. During each of the three years ended
December 31, 1998, and the nine months ended September 30, 1998 and 1999 the
Company has not had any significant adjustments to net loss that are required
to be reported in comprehensive income (loss).
F-10
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of Enterprise and Related Information." During
each of the three years ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 the Company's management focused its business
activities on the marketing and sale of sporting goods over the Internet. Since
management's primary form of internal reporting is aligned with the marketing
and sale of sporting goods, the Company believes it operates in one segment.
Revenue from shipments to customers outside of the United States was 0%, 0%,
6%, 0% and 9% for the years ended December 31, 1996, 1997 and 1998 and the nine
months ended September 30, 1998, and 1999, respectively.
Stock-based compensation
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Under APB 25, unearned compensation is based on the difference, if
any, on the date of the grant, between the fair value of the Company's stock
and the exercise price. Unearned compensation is amortized and expensed in
accordance with Financial Accounting Standards Board Interpretation No. 28
using the multiple-option approach. The Company accounts for stock-based
compensation issued to non-employees in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
Concentration of risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of cash equivalents, short-term investments
and trade accounts receivable. Cash equivalents and short-term investments,
primarily composed of investments in money market funds and certificates of
deposits, are maintained with two institutions and the composition and
maturities are regularly monitored by management. For accounts receivable, the
Company maintains an allowance for uncollectible accounts receivable based upon
the expected collectibility of all accounts receivable. Because of their short-
term nature, the carrying value of all financial instruments approximate their
respective fair value.
At December 31, 1997, approximately 47% of accounts receivable represented
amounts due from three different customers related to web development revenues.
At December 31, 1998, two customers accounted for 21% and 15% of accounts
receivable for commission-related revenues. Sales to these customers accounted
for approximately 25% of revenues in 1997. At September 30, 1999, no customer
represented more than 10% of outstanding accounts receivable.
The Company relies on a limited number of product manufacturers and third-
party distributors to fulfill a large percentage of products offered on the
online retail store. While management believes that alternate suppliers could
provide product at comparable terms, the loss of any one manufacturer or
distributor could delay shipments and have a material adverse effect on the
Company's business, financial position and results of operations.
F-11
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The adoption of the provisions of SOP 98-1 during
the fiscal year beginning January 1, 1999, did not have a material effect on
the financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In July 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting with Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date until the
first fiscal quarter ending June 30, 2000. The Company will adopt SFAS 133 in
its quarter ending June 30, 2000. The Company has not engaged in hedging
activities or invested in derivative instruments.
Note 2--Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December
31,
------------ September 30,
1997 1998 1999
----- ----- -------------
(unaudited)
<S> <C> <C> <C>
Prepaid expenses and other current assets:
Prepaid advertising............................ $ -- $ -- $ 709
Other.......................................... 14 132 24
----- ----- --------
$ 14 $ 132 $ 733
===== ===== ========
Property and equipment:
Computer equipment and software................ $ 230 $ 627 $ 1,447
Office furniture and fixtures.................. 101 134 707
----- ----- --------
331 761 2,154
Less: accumulated depreciation.................. (169) (291) (533)
----- ----- --------
$ 162 $ 470 $ 1,621
===== ===== ========
Other assets:
Deferred alliance costs, net (Note 7).......... $ -- $ -- $ 28,535
Deferred offering costs........................ -- -- 735
Deposits....................................... -- -- 196
Other.......................................... -- -- 184
----- ----- --------
$ -- $ -- $ 29,650
===== ===== ========
Other current liabilities:
Accrued professional fees...................... $ -- $ -- $ 724
Accrued financing fees on Series D financing... -- -- 650
Accrued advertising............................ -- -- 217
Accrued compensation........................... 28 375 582
Other.......................................... 95 48 41
----- ----- --------
$ 123 $ 423 $ 2,214
===== ===== ========
</TABLE>
F-12
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 3--Long-Term Debt (in thousands):
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------ September 30,
1997 1998 1999
----- ----- -------------
(unaudited)
<S> <C> <C> <C>
Equipment term loan (a).......................... $ -- $ 134 $ 800
Line of credit (b)............................... 237 423 --
Equipment term loan (b).......................... -- 132 77
Software loan (c)................................ -- 103 19
Capital leases................................... 18 3 --
----- ----- -----
255 795 896
Current portion of long-term debt................ (252) (606) (554)
----- ----- -----
$ 3 $ 189 $ 342
===== ===== =====
</TABLE>
(a) In September 1998, the Company entered into a loan agreement with a bank
which provided borrowings up to $800,000. Borrowings under the agreement
bear interest at the prime rate plus one-half percent (8.25% at December
31, 1998 and September 30, 1999) and are payable in equal monthly
installments over a twenty-four month period beginning in October 1999.
Borrowings for software, furniture, fixtures or telephone equipment are
limited to 75% of the invoice amount. The Company must meet certain
financial covenants in connection with the loan agreement with which it was
in compliance at December 31, 1998. As of September 30, 1999, the Company
was in compliance with all of its financial covenants.
(b) In December 1997, the Company entered into a loan agreement with a bank
which provided for a line of credit and an equipment term loan. Under the
line of credit, the Company was permitted to borrow up to $500,000 and was
required to keep cash on hand to cover the balance outstanding. At December
31, 1998, the Company had short-term investments of $423,000 collateralized
under the agreement. The line of credit bore interest at 8.75%. Interest on
the line was payable monthly. The line was paid off and terminated by the
Company in September 1999. Under the equipment term loan, the Company can
borrow up to $150,000 to be used to purchase capital equipment, furniture,
software or other equipment. The term loan bears interest at the prime rate
plus one percent (8.75% at December 31, 1998 and September 30, 1999) and is
payable in twenty-four equal installments, including interest, commencing
on January 28, 1999. The Company must meet certain financial covenants in
connection with the loan agreement with which it was in compliance at
December 31, 1998 and September 30, 1999.
(c) In October 1998, the Company entered into a loan agreement with a software
company to purchase software. Borrowings under the agreement bear interest
at 7.5% and are payable in equal monthly installments over a twelve month
period beginning in October 1998.
Under the terms of the loan agreements, the Company is prohibited from
paying dividends without approval from the bank.
Note 4--Acquisition
Effective September 3, 1999, the Company merged with Sports Universe, Inc.
("Sports Universe"). Sports Universe sells equipment and apparel for
wakeboarding, waterskiing, inline skating, surfing and skateboarding on the
Internet. The merger was accounted for using the purchase method of accounting
and accordingly, the purchase price was allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values as of the acquisition date. The total purchase price of approximately
$2.1 million consisted of 266,665 shares of Company Common Stock with an
estimated fair value of
F-13
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
approximately $8.00 per share and other acquisition related expenses of
approximately $30,000 primarily of payments for professional fees. The purchase
price was allocated to net tangible liabilities assumed of $451,000 and
goodwill of $2.6 million. The acquired goodwill will be amortized over its
estimated useful life of two years. The results of operations for Sports
Universe have been included in the Company's operations as of September 3,
1999.
The following table summarizes unaudited consolidated information for the
Company and Sports Universe (in thousands except per share amounts), giving
effect to this merger as if it had occurred on February 9, 1998 ("inception")
by consolidating the results of operations of Sports Universe from inception
through the nine months ended September 30, 1999.
<TABLE>
<CAPTION>
Pro Forma
--------------------------
Nine Months
Year ended Ended
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Net revenues....................................... $ 944 $ 3,062
Net loss available to common stockholders.......... (5,790) (29,092)
Basic and diluted net loss per share available to
common stockholders............................... $ (1.27) $ (5.96)
</TABLE>
Note 5--Commitments and contingencies:
Operating leases
The Company leases office space under noncancelable operating leases at two
locations, expiring in April 2001 and July 2004. Rent expense totaled $44,000,
$51,000, $157,000, $106,000 and $299,000 for the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 and 1999,
respectively. The Company sublets one of the spaces for a total of $385,000
through April 2001.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999............................................................ $ 262
2000............................................................ 1,113
2001............................................................ 1,042
2002............................................................ 1,024
2003............................................................ 1,062
Thereafter...................................................... 633
------
$5,136
======
</TABLE>
Distributors
The Company maintains agreements with independent distributors to provide
merchandise. The terms of these agreements are generally one to three years
with optional extension periods. Annual minimum payments under these agreements
are $344,000.
Advertising
As of September 30, 1999 the Company had commitments for online and
traditional offline advertising of approximately $4.0 million.
F-14
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Other
The Company has entered into employment agreements with five of its officers
which provide for minimum annual salary levels ranging from $110,000 to
$280,000, as well as bonuses of up to 20% of the base salary.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations or cash flows of the Company.
Note 6--Income Taxes:
The Company incurred net operating losses for each of the three years ended
December 31, 1998 and accordingly, no provision for income taxes has been
recorded. The tax benefit is reconciled to the amount computed using the
federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December
31,
---------------------
1996 1997 1998
----- ----- -------
<S> <C> <C> <C>
Federal statutory benefit............................ $(159) $(355) $(1,400)
State taxes, net of federal benefit.................. (28) (63) (247)
Future benefits not currently recognized............. 187 418 1,550
Nondeductible compensation........................... -- -- 97
----- ----- -------
$ -- $ -- $ --
===== ===== =======
</TABLE>
At December 31, 1998, the Company had approximately $4.3 million of federal
and $4.7 million of state net operating loss carryforwards available to offset
future taxable income which expire at various dates through 2019. Under the Tax
Reform Act of 1986, the amount of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events which
cause limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period.
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 604 $ 1,843
Accruals and allowances.................................... 45 354
----- -------
Net deferred tax assets................................... 649 2,197
Valuation allowance......................................... (649) (2,197)
----- -------
$ -- $ --
===== =======
</TABLE>
The Company has incurred losses for the years ended December 31, 1997 and
1998. Management believes that based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that the Company will not be able to realize its deferred tax assets and
thus a full valuation allowance has been recorded at December 31, 1997 and
1998.
F-15
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
Note 7--Convertible Preferred Stock:
Convertible Preferred Stock ("Preferred Stock") consists of the following
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Proceeds
Net of
Shares Per Share Liquidation Issuance
Series Authorized Outstanding Amount Amount Costs
------ ---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
A..................... 2,813 1,786 $0.84 $ 1,502 $ 1,473
B..................... 9,679 6,453 0.75 4,839 4,780
------ ------ ------- -------
Balance at December 31,
1998................... 12,492 8,239 6,341 6,253
C (unaudited)......... 23,804 11,657 1.54 18,000 17,923
D (unaudited)......... 5,500 3,529 4.34 15,300 14,600
------ ------ ------- -------
Balance at September 30,
1999 (unaudited)....... 41,796 23,425 $39,641 $38,776
====== ====== ======= =======
</TABLE>
The Company recorded a preferred stock dividend of $12.9 million to reflect
the difference between the issuance price of $4.34 and estimated fair value of
the Series D Preferred Stock of $8.00. The holders of Convertible Preferred
have various rights and preferences as follows:
Dividends
Holders of the Series A Preferred Stock are entitled to receive annual
dividends of 8% per share, when and if declared by the Board of Directors prior
to the declaration of dividends to holders of Common Stock. Holders of Series B
Preferred Stock are entitled to receive annual dividends of 8% per share, when
and if declared by the Board of Directors prior to the declaration of dividends
to holders of Series A Preferred Stock and holders of Common Stock. Holders of
Series C Preferred Stock are entitled to receive annual dividends of 8% per
share, when and if declared by the Board of Directors prior to the declaration
of dividends to holders of Series A Preferred Stock, holders of Series B
Preferred Stock and holders of Common Stock. Holders of Series D Preferred
Stock are entitled to receive annual dividends of 8% per share, when and if
declared by the Board of Directors prior to the declaration of dividends to the
holders of Series A Preferred Stock, holders of Series B Preferred Stock,
holders of Series C Preferred Stock and holders of Common Stock.
Conversion
Each share of Series A, Series B, Series C and Series D Preferred Stock is
convertible into shares of Common Stock based on a formula which results in a
one-for-one exchange ratio at September 30, 1999. This formula is subject to
adjustment, as defined, which essentially provides adjustments for holders of
the Preferred Stock in the event of stock splits or combinations. Such
conversion is automatic upon the earlier of (i) the effective date of a public
offering of Common Stock resulting in gross proceeds of at least $10,000,000
and at a price per share of at least $5.77 or (ii) written notice to the
corporation of the preferred stockholders' intent to convert into shares of
Common Stock.
Liquidation
In the event of liquidation, holders of the Series A Preferred Stock are
entitled to a per share distribution in preference to holders of Common Stock
equal to the Series A stated value of $0.8438 plus any declared but unpaid
dividends. The holders of Series B Preferred Stock are entitled to a per share
distribution preference to
F-16
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
holders of Common Stock and Series A Preferred Stock equal to the Series B
stated value of $0.75 plus any declared but unpaid dividends. The holders of
Series C Preferred Stock are entitled to a per share distribution preference to
holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock
equal to the Series C stated value of $1.5441 plus any declared but unpaid
dividends. The holders of Series D Preferred Stock are entitled to a per share
distribution preference to holders of Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock equal to the Series D
stated value of $4.34 plus any declared but unpaid dividends. In the event
funds are sufficient to make a complete distribution to holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock as described above, the remaining assets will be distributed
ratably among the holders of Common Stock and Series A Preferred Stock and
Series B Preferred Stock and Series C Preferred Stock and Series D Preferred
Stock, assuming conversion of all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock into
Common Stock. If distributions to holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock as
described above would reach an aggregate of $1.688, $1.496, $3.089 and $8.660
per share, respectively, the Common Stock holders would receive the remaining
assets.
Redemption
In connection with the Series B Preferred Stock share issuance, holders of
Series A Preferred Stock agreed to waive all mandatorily redeemable features
associated with their Preferred Stock. The holders of the Series B, Series C
and Series D have no redemption rights.
Voting
The holders of the Series A Preferred Stock and Series C Preferred Stock,
voting as separate classes, are entitled to elect one director, each, to the
Board. The holders of the Series B Preferred Stock, voting as a separate class,
are entitled to elect two directors to the Board.
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Common Stock, voting together as a single class, are entitled to elect two
additional directors to the Board. In addition, the holders of the Common
Stock, voting together as a class, are entitled to elect two directors.
Additionally, except as required by law, the consent of at least 66-2/3% of the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, each voting as separate classes are required to (i) amend the
articles of incorporation, (ii) establish any class of capital stock with
dividend or liquidation preferences senior to those of the Series A shares or
Series B shares or Series C shares or (iii) increase the authorized number of
Series A Preferred Stock or Series B Preferred Stock or Series C Preferred
Stock. Without the consent of the holders of at least a majority of the number
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, voting together as a single class, the Company cannot effect any
liquidation.
Warrants for Preferred Stock
In connection with the loan agreement entered into in December 1997, the
Company issued to the bank a warrant to purchase 29,630 shares of Series A
Preferred Stock. The warrant may be exercised at any time between May 1, 1998
and December 24, 2002 at an exercise price of $0.84 per share. The warrant was
recorded as a debt discount at its estimated fair value of $8,000. Amortization
of the discount was recognized as interest expense over the term of the loan
agreement. The warrant automatically converts to a warrant to purchase Common
Stock upon the effective date of an initial public offering.
F-17
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
In connection with the issuance of convertible promissory notes to certain
holders of the Series A Preferred Stock in May 1998 and December 1997, the
Company issued warrants to purchase 35,556 shares of Series A Preferred Stock.
The warrants may be exercised at any time prior to December 26, 2002 at an
exercise price of $0.84 per share. The warrants were recorded as a debt
discount at its estimated fair value of $13,000. Amortization of the discount
is being recognized as interest expense over the term of the promissory notes.
The warrants automatically convert to warrants to purchase Common Stock upon
the effective date of an initial public offering.
In May 1998 and December 1997, the Company issued warrants to purchase
24,000 shares of Series A Preferred Stock to certain members of the Board of
Directors for services. The warrants may be exercised at any time prior to May
22, 2003 and December 26, 2002 at an exercise price of $0.84 per share. The
warrants automatically convert to warrants to purchase Common Stock upon the
effective date of an initial public offering. The estimated fair value of the
warrants was $8,000. The Company has not recorded any expense for the estimated
fair value of the warrants because such amounts were insignificant.
In September 1999, the Company entered into a two-year strategic agreement
with Nike USA, Inc. ("Nike") to distribute Nike products over the Company's web
site. In exchange for certain online exclusivity rights, the Company granted
Nike a fully-vested warrant to purchase 4,114,349 shares of Series C Preferred
Stock at $1.54 per share. The warrant automatically converts to a warrant to
purchase Common Stock upon the closing of an initial public offering. The
Company will expense the estimated fair value of the warrant of approximately
$28.8 million over the term of the distribution agreement as marketing and
sales expense. The Company estimated the fair value using the Black-Scholes
option model with a per share value of $8.00 for the Series C Preferred Stock.
The unamortized balance at September 30, 1999 is included in other assets, net.
The Company estimated the fair value of each warrant using the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<CAPTION>
Year
Ended
December Nine Months
31, Ended
---------- September 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Risk-free interest rate............................ 6.40% 5.46% 5.11%
Expected life (in years)........................... Term Term Term
Dividend yield..................................... 0% 0% 0%
Expected volatility................................ 50% 50% 90%
</TABLE>
Note 8--Common Stock:
At December 31, 1997 and 1998, there were 4,547,000 and 4,886,000 shares
outstanding, respectively, of Common Stock issued to the founders of the
Company, affiliates and other nonrelated parties. At September 30, 1999, there
were 6,241,000 shares outstanding of Common Stock. A portion of the shares sold
are subject to a right of repurchase by the Company subject to vesting. At
December 31, 1997 and 1998 and September 30, 1999, there were approximately 0,
870,000 and 739,000 shares, respectively, subject to repurchase.
In September 1997, the Board of Directors approved a two-for-one stock split
of the Company's Common Stock and Preferred Stock with a corresponding
adjustment to outstanding stock options. All common and preferred share and per
share data in the accompanying financial statements have been adjusted
retroactively to give effect to the stock split.
F-18
<PAGE>
FOGDOG, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
During the year ended December 31, 1998, the Company issued 47,413 shares of
Common Stock to consultants in exchange for services. In connection with these
issuances, the Company recorded expenses of $4,000 based on the fair value of
the Common Stock on the date of grant as determined by the Board of Directors.
The Board in determining the fair value of the common stock considered, among
other things, the relative level of revenues and other operating results, the
absence of a public trading market for the Company's securities and the
competitive nature of the Company's market.
The Company has reserved shares of Common Stock for issuance as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
1999
-------------
(unaudited)
<S> <C>
Conversion of Series A...................................... 1,786
Conversion of Series B...................................... 6,452
Conversion of Series C...................................... 11,657
Conversion of Series D...................................... 3,529
Common Stock issued......................................... 6,240
Exercise of options under the Equity Incentive Plans........ 8,863
Exercise of warrants issued for Common Stock................ 116
Exercise of warrants issued for Series A Preferred Stock.... 89
Exercise of warrants issued for Series C Preferred Stock.... 4,114
Undesignated................................................ 29,154
------
72,000
======
</TABLE>
The above shares do not include shares reserved under the 1999 Stock and
ESPP Plan (See Note 10).
Warrants for Common Stock
In November 1998, the Company issued fully-vested warrants to purchase
146,667 shares of Common Stock to certain investors for services provided. The
warrants were exercisable at the option of the holder at any time prior to
March 7, 1999 at an exercise price of $0.75 per share. The estimated fair value
of the warrants was $2,000. The Company has not recorded any expense for the
estimated fair value of the warrants because such amount was insignificant. The
warrants were fully exercised in May 1999.
In March 1999, the Company issued a fully-vested warrant to purchase 64,762
shares of Common Stock to a distributor in exchange for exclusivity rights. The
warrant is exercisable at the option of the holder at any time prior to March
31, 2000 at an exercise price of $1.54 per share. The warrant is recorded as a
marketing and sales expense at its estimated fair value of $26,000 over the
term of the distribution agreement.
In May 1999, the Company issued a fully-vested warrant to purchase 4,166
shares of Common Stock to a distributor in exchange for exclusivity rights. The
warrant is exercisable at the option of the holder at any time prior to May 31,
2000, at an exercise price of $4.50 per share. The estimated fair value of the
warrant was $3,000. The Company has not recorded any expense for the estimated
fair value of the warrants because such amount was insignificant.
In September 1999, the Company issued fully-vested warrants to purchase
46,667 shares of Common Stock to distributors in exchange for exclusivity
rights. The warrants are exercisable at the option of the holders at any time
prior to March 31, 2000 at an exercise price of $4.50 per share. The warrants
are recorded as marketing and sales expenses at their estimated fair values of
$184,000 over the term of their respective distribution agreements.
F-19
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
The Company estimated the fair value of each warrant using the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<CAPTION>
Year
Ended
December Nine Months
31, Ended
--------- September 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Risk-free interest rate............................. -- 5.46% 4.88%
Expected life (in years)............................ -- Term Term
Dividend yield...................................... -- 0% 0%
Expected volatility................................. -- 50% 90%
</TABLE>
Note 9--Stock Option Plan:
In November 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "Plan") providing for the issuance of incentive and nonstatutory stock
options to employees, consultants and outside directors of the Company. The
Plan was amended in April 1999 to increase the number of shares authorized for
issuance to a total of 10,100,274.
Options may be granted at an exercise price at the date of grant of not less
than the fair market value per share for incentive stock options and not less
than 85% of the fair market value per share for nonstatutory stock options,
except for options granted to a person owning greater than 10% of the total
combined voting power of all classes of stock of the Company, for which the
exercise price of the option must be not less than 110% of the fair market
value. The fair market value of the Company's Common Stock is determined by the
Board of Directors or a committee thereof.
Options granted under the Plan generally become exercisable at a rate of 25%
after the first year and ratable each month over the next three years and
expire no later than five years after the grant date.
The following table summarizes information about stock option transactions
under the Plan (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended
--------------------------------- September 30,
1997 1998 1999
---------------- ---------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 1,199 $0.083 2,404 $ 0.083
Granted below fair
value.................. -- -- 1,931 0.083 3,427 1.42
Granted at fair value... 1,231 0.083 13 0.083 --
Exercised............... (5) 0.083 (292) 0.083 (940) .25
Canceled................ (27) 0.083 (447) 0.083 (388) .26
------ ----- --------
Outstanding at end of
period................. 1,199 0.083 2,404 0.083 4,503 1.05
====== ===== ========
Options vested.......... -- 504 825
====== ===== ========
Weighted average fair
value of options
granted during the
period................. $0.083 $ 0.72 $ 4.71
====== ====== ========
</TABLE>
At September 30, 1999, the Company had 4,360,504 shares available for future
grant under the Plan.
F-20
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
The following table summarizes the information about stock options
outstanding and exercisable as of December 31, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Outstanding and
Exercisable
--------------------------------
Weighted
Average
Remaining Weighted
Contractual Average
Number Life Exercise
Outstanding (in years) Price
Exercise Price ----------- ----------- --------
<S> <C> <C> <C>
$0.083......................................... 504 2.74 $0.083
</TABLE>
The following table summarizes the information about stock options
outstanding and exercisable as of September 30, 1999 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Outstanding and
Exercisable
--------------------------------
Weighted
Average
Remaining Weighted
Contractual Average
Number Life Exercise
Outstanding (in years) Price
Exercise Price ----------- ----------- --------
<S> <C> <C> <C>
$0.083......................................... 825 2.41 $0.083
</TABLE>
The weighted average remaining contractual life of stock options outstanding
at December 31, 1998 and September 30, 1999 was 2.91 and 3.3 years,
respectively.
Fair value disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for the
years ended December 31, 1997 and 1998 and the nine months ended September 30,
1998 and 1999 been determined based on the fair value at the grant date as
prescribed by SFAS No. 123, the Company's net loss and net loss per share would
have decreased to the pro forma amounts indicated below (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
---------------- -------------------
1997 1998 1998 1999
------- ------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Net loss available to common
stockholders:
As reported.......................... $(1,045) $(4,120) $ (1,883) $ (28,054)
======= ======= ======== =========
Pro forma............................ $(1,048) $(4,018) $ (1,823) $ (27,119)
======= ======= ======== =========
Basic and diluted net loss per share
available to common stockholders:
As reported.......................... $ (0.23) $ (0.95) $ (0.43) $ (6.04)
======= ======= ======== =========
Pro forma............................ $ (0.23) $ (0.93) $ (0.42) $ (5.84)
======= ======= ======== =========
</TABLE>
F-21
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ --------------------
1997 1998 1998 1999
----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Risk-free interest rates........ 5.13-5.64% 4.06-5.15% 5.13-5.15% 4.34-5.50%
Expected lives (in years)....... 5 5 5 5
Dividend yield.................. 0% 0% 0% 0%
Expected volatility............. 0% 0% 0% 0%
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in preceding paragraph, the above
results may not be representative of future periods.
Unearned stock-based compensation
In connection with certain stock option grants, during the year ended
December 31, 1998 and the nine months ended September 30, 1999, the Company
recognized unearned stock-based compensation totaling $1,221,000 and
$10,874,000, respectively, which is being amortized over the vesting periods of
the related options, which is generally four years, using the multiple option
approach. Amortization expense recognized for the year ended December 31, 1998
and the nine months ended September 30, 1999 totaled approximately $243,000 and
$1,582,000, respectively. In determining the fair market value on each grant
date, the Company considered among other things, the relative level of revenues
and other operating results, the absence of a public trading market for the
Company's securities and the competitive nature of the Company's market.
Note 10--Related Party Transactions:
In December 1997 and May 1998, certain holders of Series A Preferred Stock
received from the Company convertible promissory notes in exchange for
$325,000. The notes bore interest at 8% per annum. Under the terms, the notes
automatically converted into Series B Preferred Stock at the price per share
paid by the outside investors. The notes were converted into 386,905 shares of
Series B Preferred Stock in June 1998.
Note 11--Subsequent Events:
Reincorporation
In September 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 100,000,000 shares of
$0.001 par value Common Stock and 5,000,000 shares of $0.001 par value
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof. The par value of the
Preferred Stock and shares of Common Stock and Preferred Stock authorized in
the consolidated balance sheet at December 31, 1997 and 1998 and in
consolidated statement of stockholders' equity for each of the three years in
the period ended December 31, 1998 have been retroactively adjusted to reflect
the reincorporation.
Stock Split
In November 1999, the Company's Board of Directors approved a two for three
reverse stock split of the outstanding shares of common and convertible
redeemable preferred stock.
F-22
<PAGE>
FOGDOG, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 and 1999 is
unaudited)
All share and per share amounts in these consolidated financial statements
and notes thereto for all periods presented have been retroactively adjusted to
reflect the stock split.
Stock option grant (unaudited)
During October and November 1999, the Company granted options to purchase
402,373 shares of Common Stock to new employees at a weighted average exercise
price of $6.75. In connection with these stock option grants, the Company will
recognize $503,000 in unearned stock-based compensation that will be recognized
as an expense over the related vesting periods.
1999 Stock Plans (unaudited)
In September 1999, the Company's Board of Directors approved the 1999 Stock
Incentive Plan (the "1999 Plan"), which will serve as the successor plan to the
1996 Plan. The Board of Directors also approved a 1999 Employee Stock Purchase
Plan (the "1999 ESPP"). These plans will become effective immediately prior to
the completion of an initial public offering. The common stock reserved for
future issuances under these plans will be 18% of the shares of Common Stock
outstanding immediately after the initial public offering. Additionally, the
share reserve in each plan will automatically increase on the first trading day
in January each year, beginning with calendar year 2000, equal to the lesser of
(i) the number of shares initially reserved for such increase in each
respective plan, (ii) 4.25% and 0.75% of the then outstanding shares for the
1999 Plan and the 1999 ESPP, respectively, or (iii) an amount determined by the
Board of Directors.
F-23
<PAGE>
FOGDOG, INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Effective September 3, 1999, Fogdog, Inc. ("Fogdog") merged with Sports
Universe, Inc. ("Sports Universe"). Sports Universe sells equipment and apparel
for wakeboarding, waterskiing, inline skating, surfing and skateboarding on the
Internet. The merger was accounted for using the purchase method of accounting
and accordingly the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair values at
the acquisition date. The total purchase price of approximately $2.1 million
consisted of 266,665 shares of Fogdog Common Stock with an estimated fair value
of approximately $8.00 per share and other acquisition related expenses of
approximately $30,000, consisting primarily of payments for professional fees.
The purchase price was allocated to net tangible liabilities assumed of
$451,000 and goodwill of $2.6 million. The acquired goodwill will be amortized
over its estimated useful life of two years.
The following unaudited pro forma consolidated statements of operations
gives effect to this merger as if it had occurred on February 9, 1998
("inception"), by consolidating the results of operations of Sports Universe
from inception through December 31, 1998 and the nine months ended September
30, 1999 with the results of operations of Fogdog. The unaudited pro forma
consolidated statements of operations are not necessarily indicative of the
operating results that would have been achieved had the transaction been in
effect as of December 31, 1998 and should not be construed as being
representative of future operating results.
The historical financial statements of Fogdog and Sports Universe are
included elsewhere in this Prospectus and the unaudited pro forma consolidated
financial information presented herein should be read in conjunction with those
financial statements and related notes.
F-24
<PAGE>
FOGDOG, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
---------------------------------------------
Sports
Universe,
Fogdog, Inc. Inc. Adjustments Pro Forma
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.................... $ 2,577 $ 485 $ -- $ 3,062
Cost of revenues................ 2,070 327 -- 2,397
-------- ----- ----- --------
Gross profit.................... 507 158 -- 665
-------- ----- ----- --------
Operating expenses:
Marketing and sales........... 10,807 121 -- 10,928
Site development.............. 2,205 -- -- 2,205
General and administrative.... 1,181 214 -- 1,395
Amortization of intangible
assets....................... 144 -- 861 (A) 1,005
Amortization of stock-based
compensation................. 1,582 -- -- 1,582
-------- ----- ----- --------
Total operating expenses.... 15,919 335 861 17,115
-------- ----- ----- --------
Operating loss.................. (15,412) (177) (861) (16,450)
Interest income, net............ 276 -- -- 276
-------- ----- ----- --------
Net loss........................ (15,136) (177) (861) (16,174)
Deemed preferred stock
dividend....................... (12,918) -- -- (12,918)
-------- ----- ----- --------
Net loss available to common
stockholders................... $(28,054) $(177) $(861) $(29,092)
======== ===== ===== ========
Pro forma basic and diluted loss
per share available to common
stockholders (B)............... $ (6.04) $ (5.96)
======== ========
Pro forma basic and diluted
weighted average shares used in
computation of pro forma net
loss per share available to
common stockholders............ 4,645 4,885
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-25
<PAGE>
FOGDOG, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------
Sports
Universe,
Fogdog, Inc. Inc. Adjustments Pro Forma
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.................... $ 765 $ 179 $ -- $ 944
Cost of revenues................ 275 126 -- 401
------- ----- ------- -------
Gross profit.................... 490 53 -- 543
------- ----- ------- -------
Operating expenses:
Marketing and sales........... 2,399 261 -- 2,660
Site development.............. 1,318 -- -- 1,318
General and administrative.... 705 278 -- 983
Amortization of intangible
assets....................... -- -- 1,184 (A) 1,184
Amortization of stock-based
compensation................. 243 -- -- 243
------- ----- ------- -------
Total operating expenses.... 4,665 539 1,184 6,388
------- ----- ------- -------
Operating loss.................. (4,175) (486) (1,184) (5,845)
Interest income, net............ 29 -- -- 29
Other income.................... 26 -- -- 26
------- ----- ------- -------
Net loss........................ $(4,120) $(486) $(1,184) $(5,790)
======= ===== ======= =======
Pro forma basic and diluted loss
per share (B).................. $ (0.95) $ (1.27)
======= =======
Pro forma basic and diluted
weighted average shares used in
computation of pro forma net
loss per share................. 4,323 4,561
======= =======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements
F-26
<PAGE>
FOGDOG INC.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following adjustments were applied to Fogdog's historical financial
statements and those of Sports Universe to arrive at the pro forma consolidated
financial information.
(A) To record amortization of acquired goodwill totaling $2,583,000 over
the estimated period of benefit of two years.
(B) Pro forma basic and diluted net loss per share available to common
stockholders of the nine month period ended September 30, 1999 and for
the year ended December 31, 1998 was computed using the weighted
average number of common and common equivalent shares outstanding. Pro
forma common equivalent shares, composed of unvested restricted Common
Stock, incremental Common Stock issuable upon the exercise of stock
options, warrants, and outstanding Preferred Stock are included in
diluted net loss per share to the extent such shares are dilutive.
Differences between historical weighted average shares outstanding and
pro forma weighted average shares outstanding used to compute net loss
per share results form the inclusion of shares issued in conjunction
with the acquisition as if such shares were outstanding as of February
9, 1998 (inception of Sports Universe).
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sports Universe, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Sports Universe, Inc. at December
31, 1998 and the results of its operations and its cash flows for the period
from February 9, 1998 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
September 8, 1999
F-28
<PAGE>
SPORTS UNIVERSE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash................................................. $ 10,000 $ 21,000
Accounts receivable.................................. 9,000 44,000
Inventory............................................ -- 20,000
Other current assets................................. 1,000 1,000
--------- ---------
Total current assets............................... 20,000 86,000
Property and equipment, net............................ 83,000 47,000
--------- ---------
Total assets..................................... $ 103,000 $ 133,000
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 43,000 $ 109,000
Accrued liabilities.................................. 166,000 175,000
Capital lease obligations............................ 65,000 48,000
Loan from related parties............................ 312,000 325,000
--------- ---------
Total current liabilities.......................... 586,000 657,000
--------- ---------
Commitments (Note 5)
Stockholders' deficit:
Common stock
Par value $0.001; 25,000,000 shares authorized;
785,000 and 6,346,000 shares outstanding........... 1,000 6,000
Additional paid-in capital........................... 2,000 19,000
Accumulated deficit.................................. (486,000) (549,000)
--------- ---------
Total stockholders' deficit........................ (483,000) (524,000)
--------- ---------
Total liabilities and stockholders' deficit...... $ 103,000 $ 133,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-29
<PAGE>
SPORTS UNIVERSE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from February Six
9, Months
1998 (inception) Ended
through June 30,
----------------------- 1999
<S> <C> <C> --------
December 31, June 30,
1998 1998
------------ ---------
<CAPTION>
(Unaudited)
<S> <C> <C> <C>
Net revenues:
Product................... $ 142,000 $ 21,000 $225,000
Web design and other...... 37,000 7,000 37,000
------------ --------- --------
Total net revenues...... 179,000 28,000 262,000
------------ --------- --------
Cost of revenues:
Product................... 122,000 16,000 139,000
Web design and other...... 4,000 1,000 16,000
------------ --------- --------
Total cost of revenues.. 126,000 17,000 155,000
------------ --------- --------
Gross profit................ 53,000 11,000 107,000
------------ --------- --------
Operating expenses:
Marketing and sales....... 261,000 179,000 67,000
General and
administrative........... 278,000 147,000 103,000
------------ --------- --------
Total operating
expenses............... 539,000 326,000 170,000
------------ --------- --------
Net loss.................... $ (486,000) $(315,000) $(63,000)
============ ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE>
SPORTS UNIVERSE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
at inception........... 785,000 $1,000 $ 2,000 $ -- $ 3,000
Net loss................ -- -- -- (486,000) (486,000)
--------- ------ ------- --------- ---------
Balance at December 31,
1998................... 785,000 1,000 2,000 (486,000) (483,000)
Issuance of common stock
(unaudited)............ 5,611,000 5,000 17,000 -- 22,000
Repurchase of common
stock (unaudited)...... (50,000) -- -- -- --
Net loss (unaudited).... -- -- -- (63,000) (63,000)
--------- ------ ------- --------- ---------
Balance at June 30, 1999
(unaudited)............ 6,346,000 $6,000 $19,000 $(549,000) $(524,000)
========= ====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-31
<PAGE>
SPORTS UNIVERSE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from February 9, 1998 Six
(inception) through Months
-------------------------------- Ended
December 31, June 30, June 30,
1998 1998 1999
---------------- -------------- --------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $ (486,000) $ (315,000) $(63,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 36,000 15,000 24,000
Gain on sale of fixed assets.... -- -- (6,000)
Changes in assets and
liabilities:
Accounts receivable........... (9,000) (5,000) (35,000)
Inventory..................... -- -- (20,000)
Other current assets.......... (1,000) (1,000) --
Accounts payable.............. 43,000 9,000 88,000
Accrued liabilities........... 166,000 128,000 9,000
-------------- -------------- --------
Net cash used in operating
activities................. (251,000) (169,000) (3,000)
-------------- -------------- --------
Cash flows from investing
activities:
Acquisition of property and
equipment........................ (49,000) (47,000) --
Proceeds from sale of computer
equipment........................ -- -- 18,000
-------------- -------------- --------
Net cash (used in) provided
by investing activities.... (49,000) (47,000) 18,000
-------------- -------------- --------
Cash flows from financing
activities:
Payments on capitalized lease
obligations...................... (7,000) (1,000) (17,000)
Payments on loans from related
parties.......................... (64,000) (41,000) (8,000)
Proceeds on loans from related
parties.......................... 378,000 277,000 21,000
Issuance of common stock.......... 3,000 2,000 --
-------------- -------------- --------
Net cash provided by (used
in) financing activities... 310,000 237,000 (4,000)
-------------- -------------- --------
Net increase in cash................ 10,000 21,000 11,000
Cash at beginning of period......... -- -- 10,000
-------------- -------------- --------
Cash at end of period............... $ 10,000 $ 21,000 $ 21,000
============== ============== ========
Non-cash investing activities:
Computer equipment leases......... $ 71,000 $ 71,000 --
Conversion of employee
compensation to common stock..... -- -- $ 22,000
</TABLE>
The accompanying notes are an integral part of these financial statements
F-32
<PAGE>
SPORTS UNIVERSE, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Information for the period from inception through June 30, 1998
and the six months ended June 30, 1999 is unaudited)
Note 1--The Company and Summary of Significant Accounting Policies:
The Company
Sports Universe, Inc. (the "Company"), was incorporated in Delaware on
February 9, 1998 ("Inception") for the purpose of selling equipment and apparel
for wakeboarding, waterskiing, inline skating, snowboarding, surfing and
skateboarding on the Internet.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Revenue recognition
The Company's revenues are derived primarily from sales of products over the
Internet. Revenues related to product sales are recognized upon shipment by the
Company or one of its distribution partners. The Company also derives revenues
from Web design, Web hosting, promotion sales and advertising on its web site.
The Company recognizes revenue on Web design and Web hosting as the service is
provided to the customer and no ongoing obligation exists, and advertising
revenue is recognized over the period the advertising is displayed.
Restricted cash
The Company has cash restricted for use for certain service providers that
process customer credit card orders. This cash is used to pay the service
providers for amounts not paid for by credit card vendors related to customer
orders. As of December 31, 1998 and June 30, 1999 (unaudited), the Company had
restricted cash of $3,000 and $7,000, respectively, included in cash.
Inventory
Inventory is stated at lower of cost or market, cost being determined by the
first-in, first-out method.
Property and equipment
Property and equipment are stated at historical cost. Depreciation is
computed using straight-line method over the estimated useful lives of the
assets. Computer equipment and office furniture and fixtures are depreciated
over three and five years, respectively. For computer equipment under capital
leases, the net present value of future lease payments is capitalized at the
inception of the lease and amortized over the estimated useful lives of the
related asset. From Inception to June 30, 1998 and December 31, 1998 and for
the six months ended June 30, 1999 the Company had depreciation and
amortization expense of $15,000, $37,000, and $23,000, respectively. The
capital leases all have bargain purchase options which allows the Company to
purchase the equipment below fair value at the end of the lease.
Advertising costs
Advertising costs are expensed as incurred in accordance with Statement of
Position 93-7, "Reporting on Advertising Costs". Advertising costs from
Inception to June 30, 1998 and December 31, 1998 and for the six-month period
ended June 30, 1999 (unaudited) were $19,000, $35,000 and $1,000, respectively.
F-33
<PAGE>
SPORTS UNIVERSE, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the period from inception through June 30, 1998
and the six months ended June 30, 1999 is unaudited)
Concentration of risks
Financial instruments that potentially subject the Company to a
concentration of credit risk are cash and accounts receivable. Cash is
deposited with a high quality financial institution. The Company's accounts
receivable are derived from revenue earned from customers located in the United
States and are dominated in U.S. dollars. Accounts receivable balances are
typically settled through customer credit cards and, as a result, the majority
of accounts receivable are collected upon processing of credit card
transactions. No customer accounts for more than 10% of the revenues or
accounts receivable as of June 30, 1999 or December 31, 1998.
The Company has a limited number of distribution partners one of which fills
a material portion of Company's customer orders. The Company has a distribution
agreement with this distribution partner. The loss of this distribution partner
could have material adverse effect on Company's statement of operations.
Fair value of financial instruments
The Company's financial instruments, including cash, accounts receivables,
accounts payable, accrued expenses and related party loans, have carrying
amounts which approximate fair value due to relatively short maturity of these
instruments.
Interim financial information
The accompanying balance sheet as of June 30, 1999 and the statements of
operations and of cash flows for the six-month period ended June 30, 1999 and
from Inception to June 30, 1998 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of the interim
periods. The financial data and other information disclosed in these notes to
financial statements related to these periods is unaudited. The results for the
six months ended June 30, 1999 are not necessarily indicative of the results to
be expected for the year ending December 31, 1999.
Note 2--Balance Sheet Components:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Property and equipment:
Computer equipment...... $ 39,000 $ 39,000
Computer equipment under
a capital lease........ 71,000 36,000
Furniture and office
equipment.............. 10,000 10,000
-------- --------
120,000 85,000
Less: accumulated
depreciation and
amortization........... (37,000) (38,000)
-------- --------
$ 83,000 $ 47,000
======== ========
Accrued expenses:
Web design.............. $ 62,000 $ 56,000
Advertising expenses.... 33,000 19,000
Legal expenses.......... 47,000 52,000
Payroll expense......... -- 19,000
Rent.................... 21,000 25,000
Other................... 3,000 4,000
-------- --------
$166,000 $175,000
======== ========
</TABLE>
F-34
<PAGE>
SPORTS UNIVERSE, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the period from inception through June 30, 1998
and the six months ended June 30, 1999 is unaudited)
Note 3--Related Party Transactions:
The Company had loans from two of its key employees totaling $240,000 and
$237,000 as of June 30, 1999 and December 31, 1998, respectively. These
borrowings relate to certain operating expenses which were paid by the employee
and cash infusions made which were made to the Company. These related party
loans do not have a stated maturity and are non-interest bearing.
The Company also had convertible debt with certain investors in the amount
of $85,000 and $75,000 as of June 30, 1999 and December 31, 1998, respectively.
The note holder has the option to convert the debt into common stock or to be
paid in cash one year after issuance of the note. The note automatically
converts to common shares if the Company receives financing at a rate based
upon the fair value of the common stock at the date of conversion, as defined
in the agreement. The notes carried an annual interest rate of 10%.
Note 4--Income Taxes:
The Company incurred a net operating loss for the period from Inception to
December 31, 1998 and accordingly, no provision for income taxes has been
recorded. The tax benefit is reconciled to the amount computed using the
federal statutory rate as follows:
<TABLE>
<CAPTION>
From Inception to
December 31, 1998
-----------------
<S> <C>
Federal statutory benefit.................................. $(157,000)
State taxes, net of federal benefit........................ (28,000)
Future benefits not currently recognized................... 185,000
---------
$ --
=========
</TABLE>
At December 31, 1998, the Company had approximately $461,000 of federal and
$462,000 of state net operating loss carryforwards available to offset future
taxable income which expire at various dates through 2013. Under the Tax Reform
Act of 1986, the amount of and benefits from net operating loss carryforwards
may be impaired or limited in certain circumstances. Events which cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50%, as defined, over a three year period.
Note 5--Commitments:
Rent expense under non-cancelable operating lease agreements for the six-
month period ended June 30, 1999 and from Inception to June 30, 1998 and
December 31, 1998 were $7,000, $22,000 and $47,000, respectively.
Future minimum lease payments related to office facilities and computer
equipment under non-cancelable operating and capital leases are $44,000 for
1999, $19,000 for 2000 and $4,000 for 2001. There are no minimum lease payments
due after March 2001.
Note 6--Common Stock:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue common stock, $.001 par value. For the six-months ended June 30, 1999,
the Company issued 6,346,000 shares of Common
F-35
<PAGE>
SPORTS UNIVERSE, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the period from inception through June 30, 1998
and the six months ended June 30, 1999 is unaudited)
Stock to both employees and non-related parties, respectively. A portion of
these shares, issued to employees are subject to a right of repurchase by the
Company, which lapses generally over a one-year period. At June 30, 1999, there
were 735,000 shares subject to repurchase.
Note 7--Subsequent Events:
On September 3, 1999 the Company merged with Fogdog Acquisition Corp., a
wholly owned subsidiary of Fogdog, Inc.
F-36
<PAGE>
The inside backcover of the prospectus includes:
The following text placed in the center of the page and the Fogdog Sports logo
below the text:
THE DOG KNOWS SPORTS
[Fogdog Sports Logo]
Circling the text described above and the Fogdog Sports logo are the following,
clockwise starting with the top of the page in the center:
[PICTURE OF SOCCER CLEAT EXPERT ADVICE PAGE]
The word "EXPERTISE" appears above the picture of the soccer cleat expert advice
page.
[PICTURE OF RUNNING SHOE SELECTION PAGE]
The word "SELECTION" appears above the picture of the running shoe selection
page.
[PICTURE OF BULLETIN BOARD IN THE OUTDOOR COMMUNITY PAGE]
The word "COMMUNITY" appears above the picture of the bulletin board in the
outdoor community page.
[CLOSE-UP PICTURE OF A JACKET]
The words "DETAILED IMAGERY" appear above the close-up picture of a jacket.
[PICTURE OF PRODUCT INFORMATION FOR SOCCER CLEAT PAGE]
The words "PRODUCT INFORMATION" appear above the picture of the product
information for soccer cleat page.
[PICTURE OF COMPARISON CHART FOR CLIMBING FOOTWEAR PAGE]
The words "COMPARISON CHARTS" appear above the picture of the comparison chart
for climbing footwear page.
[PICTURE OF FOGDOG FETCH BASEBALL AND SOFTBALL BAT CONFIGURATOR PAGE]
The word "CONFIGURATOR" appears above the picture of the Fogdog Fetch baseball
and softball configurator page.
[PICTURE OF CALLAWAY GOLF BRAND PAGE]
The words "TOP BRANDS" appear above the picture of the Callaway Golf brand
page, which includes the Callaway logo.
<PAGE>
The back cover of the prospectus contains Fogdog Sports logo.
[LOGO OF FOGDOG SPORTS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discounts payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fees and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 19,182
NASD Filing Fee.................................................. 7,400
Nasdaq National Market Listing Fee............................... 75,000
Printing and Engraving Expenses.................................. 275,000
Legal Fees and Expenses.......................................... 650,000
Accounting Fees and Expenses..................................... 350,000
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent Fees.............................................. 15,000
Miscellaneous.................................................... 98,418
----------
Total.......................................................... $1,500,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6 of our bylaws
provides for mandatory indemnification of our directors and officers and
permissible indemnification of employees and other agents to the maximum
extent permitted by the Delaware General Corporation Law. Our certificate of
incorporation provides that, subject to Delaware law, our directors will not
be personally liable for monetary damages for breach of the directors'
fiduciary duty as directors to Fogdog Sports and its stockholders. This
provision in the certificate of incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the company or our
stockholders for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. We have entered into indemnification agreements with our officers and
directors, a form of which will be filed with the Securities and Exchange
Commission as an exhibit to our registration statement on Form S-1 (No. 333-
87819). The indemnification agreements provide our officers and directors with
further indemnification to the maximum extent permitted by the Delaware
General Corporation Law. Reference is also made to Section 7 of the
underwriting agreement contained in exhibit 1.1 hereto, indemnifying our
officers and directors against certain liabilities, and section 1.11 of the
Third Amended and Restated Registration Rights Agreement contained in exhibit
4.2 hereto, indemnifying the parties thereto, including controlling
stockholders, against liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below. All share
numbers and per share prices have been adjusted to reflect a two for three
reverse stock split to be effective immediately prior to the consummation of
this offering.
(a) Since inception, the registrant has issued an aggregate of
1,133,333 shares of its common stock to Brett M. Allsop in exchange for
services rendered in connection with the organization of the company and
valued at approximately $30,000.
(b) Since inception, the registrant has issued an aggregate of
1,133,333 shares of its common stock to Robert S. Chea in exchange for
services rendered in connection with the organization of the company and
valued at approximately $30,000.
(c) Since inception, the registrant has issued an aggregate of
1,133,333 shares of its common stock to Andrew Y. Chen in exchange for
services rendered in connection with the organization of the company and
valued at approximately $30,000.
(d) Since inception, the registrant has issued and sold an aggregate of
200,000 shares of its common stock to Michael Allsop for an aggregate
consideration of $10,000.
(e) Since inception, the registrant has issued and sold an aggregate of
200,000 shares of its common stock to James Allsop for an aggregate
consideration of $10,000.
(f) Since inception, the registrant has issued and sold an aggregate of
200,000 shares of its common stock to Jon Allsop for an aggregate
consideration of $10,000.
(g) Since inception, the registrant has issued and sold an aggregate of
210,528 shares of its common stock to Marcy E. von Lossberg in exchange for
services rendered to the company during her first year of employment
pursuant to the terms of her employment agreement entered in July 1995. See
"Transactions and Relationships with Related Parties--Agreements with
Officers and Directors."
(h) Since inception, the registrant has issued and sold an aggregate of
221,164 shares of its common stock to Robert Maxfield for an aggregate
consideration of $18,661.
(i) Since inception, the registrant has issued and sold an aggregate of
110,581 shares of its common stock to Frederick M. Gibbons for an aggregate
consideration of $9,330.
(j) In September 1996, the registrant issued and sold 1,155,554 shares
of its Series A preferred stock to Novus Ventures, L.P., the Robert
Maxfield Separate Property Trust, William Romans and Frederick Gibbons for
an aggregate purchase price of $974,999.
(k) In May 1997, the registrant issued and sold 622,224 shares of its
Series A preferred stock to Marianne Allsop, Richard K. Morse, Lazy A Land
Company LLC, Jamey Allsop, Skye Allsop and BSJR, Inc. for an aggregate
purchase price of $525,001.
(l) In October 1997, the registrant issued and sold 8,400 shares of its
Series A preferred stock to Enterprise Law Group for an aggregate purchase
price of $7,088.
(m) In December 1997, the registrant issued to Imperial Bank warrants
to purchase 29,630 shares of its Series A preferred stock at an exercise
price of $0.84375 per share.
(n) In December 1997, the registrant issued to Novus Ventures, L.P.,
Robert Maxfield and Frederick Gibbons warrants to purchase an aggregate of
29,778 shares of its Series A preferred stock at an exercise price of
$0.84375 per share, 17,778 of which shares were exercised in November 1999
by Novus Ventures, L.P., and convertible promissory notes in aggregate
principal amount of $162,500 accruing interest at a rate of 8% per annum.
(o) In May 1998, the registrant issued to Novus Ventures, L.P., Robert
Maxfield and Frederick Gibbons warrants to purchase an aggregate of 29,778
shares of its Series A preferred stock at an exercise price of $0.84375 per
share, 17,778 of which shares were exercised in November 1999 by Novus
Ventures, L.P., and convertible promissory notes in aggregate principal
amount of $162,500 accruing interest at a rate of 8% per annum.
II-2
<PAGE>
(p) In June 1998, Novus Ventures, L.P., Robert Maxfield and Frederick
Gibbons converted the principal of the convertible promissory notes, a
total of $325,000, into an aggregate of 434,622 shares of the registrant's
Series B preferred stock.
(q) In June 1998, the registrant issued and sold 6,017,844 shares of
its Series B preferred stock to entities affiliated with Whitney Equity
Partners and entities affiliated with Draper Fisher (now Draper Fisher
Jurvetson Management) for an aggregate purchase price of $4,500,000, which
included $75,000 of cancellation of indebtedness.
(r) In August 1998, the registrant issued and sold 47,413 shares of its
common stock to A&R Partners, Inc. in exchange for past services valued at
$3,912.
(s) In November 1998, the registrant issued to Sequoia Partners
warrants to purchase 146,666 shares of its common stock at an exercise
price of $0.75 per share. In February 1999, Sequoia Partners exercised such
warrants for 29,333 shares in the name of Patricia M. Baehr Residual Trust,
44,000 shares in the name of Borenstein Family Trust, and 73,333 shares in
the name of Makena Partners, L.P. for an aggregate purchase price of
$110,000.
(t) In March 1999, the registrant issued to iTurf, Inc. warrants to
purchase 64,762 shares of its common stock at an aggregate exercise price
of $100,000.
(u) In March and April 1999, the registrant issued and sold 11,657,277
shares of its Series C preferred stock to Novus Ventures, L.P., entities
affiliated with Vertex Technologies, Glynn Investment Co., LLC, Intel
Corporation, entities affiliated with Venrock Associates, entities
affiliated with Draper Fisher Jurvetson, entities affiliated with Whitney
Equity Partners, entities affiliated with Sprout Group L.P., entities
affiliated with DLJ Capital Corp., entities affiliated with Marquette
Venture Partners and approximately fifteen other investors for an aggregate
purchase price of $18,000,000.
(v) In May 1999, the registrant issued to distribution partners
warrants to purchase 4,166 shares of its common stock at an exercise price
of $4.50 per share.
(w) In August 1999, in connection with the acquisition of Sports
Universe, Inc., the registrant issued 266,665 shares of its common stock in
exchange for all outstanding shares of Sports Universe, Inc.'s capital
stock.
(x) In September 1999, the registrant issued to Nike USA, Inc. a
warrant to purchase 4,114,349 shares of its Series C preferred stock at an
exercise price of $1.54 per share.
(y) In September 1999, prior to the filing of the Registration
Statement, the registrant issued and sold 3,529,410 shares of its Series D
preferred stock to entities affiliated with Draper Fisher Jurvetson,
entities affiliated with Whitney Equity Partners, entities affiliated with
Venrock Associates, entities affiliated with Sprout Group L.P., entities
affiliated with Marquette Venture Partners, Vertex Technology Fund (II)
Ltd., entities affiliated with Worldview Technology Partners, Boston
Millennia Partners, L.P., entities affiliated with Lycos Ventures, Hikari
Tsushin, Inc., Aman Ventures L.L.C., Peder Smedvig Capital Ventures III and
two other investors for an aggregate purchase price of $15,300,000.
(z) In September 1999, the registrant issued to Fromuth Tennis, Inc.,
one of the registrant's suppliers, warrants to purchase 33,333 shares of
its common stock at an exercise price of $4.50 per share.
(aa) In September 1999, the registrant issued to a distribution
partner a warrant to purchase 13,333 shares of its common stock at an
exercise price of $4.50 per share.
(bb) Since its inception, the registrant has granted stock options to
its employees, directors and consultants under its 1996 Amended and
Restated Stock Option Plan, exercisable for up to an aggregate of 6,602,154
shares of its common stock, with exercise prices ranging from $0.0825 to
$4.50.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or
Rule 701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in
II-3
<PAGE>
each transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in these transactions. All recipients had
adequate access, through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
The exhibits listed in the exhibit Index are filed as part of this
registration statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1** Agreement and Plan of Reorganization, dated August 13, 1999, by and
among the registrant, Fogdog Acquisition Corp., Sports Universe, Inc.
and certain principal stockholders of Sports Universe, Inc.
3.1** Amended and Restated Certificate of Incorporation, to be effective
upon consummation of this offering.
3.2** Amended and Restated Bylaws, to be effective upon consummation of this
offering.
3.3* Amended and Restated Articles of Incorporation, as filed with the
California Secretary of State on September 17, 1999 in connection with
the registrant's Series D preferred stock financing.
4.1* Form of registrant's Specimen Common Stock Certificate.
4.2** Third Amended and Restated Registration Rights Agreement, dated March
3, 1999, April 16, 1999, and September 23, 1999, by and among the
registrant and the parties who are signatories thereto.
4.3** Warrant to Purchase Series A Preferred Stock, dated December 24, 1997,
by and between the registrant and Imperial Bank.
4.4** Warrant to Purchase Series C Preferred Stock, dated September 23,
1999, by and between the registrant and Nike USA, Inc.
4.5 Series C Preferred Stock Purchase Agreement, dated March 3, 1999, by
and among the registrant and the parties who are signatories thereto.
4.6 Series C Preferred Stock Purchase Agreement, dated April 16, 1999, by
and among the registrant and the parties who are signatories thereto.
4.7 Series D Preferred Stock Purchase Agreement, dated September 23, 1999,
by and among the registrant and the parties who are signatories
thereto.
5.1** Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
registrant, with respect to the common stock being registered.
10.1** Registrant's Amended and Restated 1996 Stock Option Plan.
10.2 Registrant's 1999 Stock Incentive Plan.
10.3 Registrant's 1999 Employee Stock Purchase Plan.
10.4** Form of registrant's Directors and Officers' Indemnification
Agreement.
10.5+** Agreement, dated June 30, 1999, by and between the registrant and
America Online Inc.
10.6** Amended and Restated Loan Agreement, dated September 16, 1998, by and
between the registrant and Imperial Bank.
10.7** Sublease, dated July 14, 1999, by and between the registrant and Ampex
Corporation.
10.8** Letter Agreement, dated December 9, 1997, by and between the
registrant and Robin Smith.
10.9** Amended and Restated Employment Agreement, effective September 17,
1999, by and between the registrant and Timothy Harrington.
10.10** Employment Agreement, dated June 12, 1998, by and between the
registrant and Robert Chea.
10.11** Amended and Restated Employment Agreement, dated April 5, 1999, by and
between the registrant and Brett Allsop.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.12** Letter Agreement, dated August 23, 1999, by and between the registrant
and Timothy Joyce.
10.13+ Order Fulfillment Services Agreement, dated September 17, 1999, by and
between the registrant and Keystone Fulfillment, Inc.
10.14+ Letter Agreement dated September 17, 1999, by and between the
registrant and Nike USA, Inc.
10.15* Letter Agreement, dated November 7, 1999, by and between the
registrant and Mark Garrett.
21.1** Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.3** Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule for Sports Universe, Inc. (In EDGAR format
only)
27.2** Financial Data Schedule for Fogdog, Inc. (In EDGAR format only)
</TABLE>
- --------
*To be filed by amendment
**Previously filed
+Confidential Treatment Requested
(b) Financial Statement Schedule
None
Item 17. Undertakings
We hereby undertake to provide to the underwriters at the closing specified
in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant
to the Delaware General Corporation Law, our certificate of incorporation or
our bylaws, indemnification agreements entered into between the company and
our officers and directors, the underwriting agreement, or otherwise, we have
been advised that in the opinion of the commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Redwood City, State of California,
on this 18th day of November, 1999.
/s/ Timothy P. Harrington
By: _________________________________
Timothy P. Harrington
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the persons whose signatures
appear below, which persons have signed such registration statement in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Timothy P. Harrington Chief Executive Officer November 18, 1999
_______________________________ (Principal Executive
Timothy P. Harrington Officer)
and Director
* President, International November 18, 1999
_______________________________ Division and Chairman of
Brett M. Allsop the Board
/s/ Marcy E. von Lossberg Chief Financial Officer November 18, 1999
_______________________________ (Principal Accounting
Marcy E. von Lossberg Officer)
* Director November 18, 1999
_______________________________
Frederick M. Gibbons
* Director November 18, 1999
_______________________________
Peter J. Huff
* Director November 18, 1999
_______________________________
Robert R. Maxfield
* Director November 18, 1999
_______________________________
Warren J. Packard
* Director November 18, 1999
_______________________________
Ralph T. Parks
* Director November 18, 1999
_______________________________
Ray A. Rothrock
* Director November 18, 1999
_______________________________
Lloyd D. Ruth
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Marcy E. von Lossberg
*By: _________________________________
Marcy E. von Lossberg,
Attorney-in-fact
</TABLE>
II-6
<PAGE>
EXHIBIT 1.1
6,000,000 Shares
FOGDOG, INC.
Common Stock, $.001 par value per share
UNDERWRITING AGREEMENT
----------------------
, 1999
-----------
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
Thomas Weisel Partners LLC
Warburg Dillon Read LLC,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Fogdog, Inc., a Delaware corporation ("Company"),
proposes to issue and sell 6,000,000 shares ("Firm Securities") of its Common
Stock, $.001 par value per share ("Securities"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 900,000 additional shares ("Optional Securities") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". As part of the offering
contemplated by this Agreement, Credit Suisse First Boston Corporation (the
"Designated Underwriter") has agreed to reserve out of the Firm Securities
purchased by it under this Agreement, up to 510,000 shares, for sale to the
Company's directors, officers, employees and other parties associated with the
Company (collectively, "Participants"), as set forth in the Prospectus (as
defined herein) under the heading "Underwriting" (the "Directed Share Program").
The Firm Securities to be sold by the Designated Underwriter pursuant to the
Directed Share Program (the "Directed Shares") will be sold by the Designated
Underwriter pursuant to this Agreement at the public offering price. Any
Directed Shares not confirmed for purchase by a Participant by the end of the
business day on which this Agreement is executed will be offered to the public
by the Underwriters as set forth in the Prospectus. The Company hereby agrees
with the several Underwriters named in Schedule A hereto ("Underwriters") as
follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-87819) relating to the
Offered Securities, including a form of prospectus, has been filed with
the Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933 ("Act") and is
not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If such registration statement
("initial registration statement") has been declared effective, either
(i) an additional registration statement ("additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act
and, if so filed, has become effective upon filing pursuant to such Rule
and the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon
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<PAGE>
such filing the Offered Securities will all have been duly registered
under the Act pursuant to the initial registration statement and such
additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment (if
any) to each such registration statement has been declared effective by
the Commission or has become effective upon filing pursuant to Rule
462(c) ("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or
the most recent post-effective amendment thereto (if any) filed prior to
the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule
462(c), or (ii) if the Company has advised the Representatives that it
proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as
the case may be, is declared effective by the Commission. If an
additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with
respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to the
initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and as of such Effective Date did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the Act
and the Rules and Regulations and as of any such Effective Date did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and (iii) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Date of the
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<PAGE>
Additional Registration Statement in which the Prospectus is included,
each Registration Statement and the Prospectus will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents includes, or will include,
any untrue statement of a material fact or omits, or will omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act and the
Rules and Regulations, and the Initial Registration Statement will not
include any untrue statement of a material fact and will not omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and the Prospectus will not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and no Additional Registration Statement has
been or will be filed. The two preceding sentences do not apply to
statements in or omissions from a Registration Statement or the
Prospectus based upon written information furnished to the Company by
any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification, other than
where the failure to be so qualified or in good standing would not have
a Material Adverse Effect (as defined herein).
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct
of its business requires such qualification, except where the failure to
be so qualified and in good standing would not have a Material Adverse
Effect (as defined herein); all of the issued and outstanding capital
stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and the capital
stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform in all material respects to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Underwriter for a brokerage commission, finder's fee or other like
payment in connection with this offering.
(g) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such
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<PAGE>
securities in the securities registered pursuant to a Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act other than
those that have been waived in writing.
(h) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities, will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company or
any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or any
such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of
the Company or any such subsidiary, other than a breach, violation or
default that would not reasonably be expected to have a Material Adverse
Effect (as defined herein), and the Company has full power and authority
to authorize, issue and sell the Offered Securities as contemplated by
this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof
by them; and except as disclosed in the Prospectus, the Company and its
subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere
with the use made or proposed to be made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any written notice of proceedings relating to
the revocation or modification of any such certificate, authority or
permit that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the financial condition, business, properties or
results of operations of the Company and its subsidiaries taken as a
whole ("Material Adverse Effect").
(n) The Company and its subsidiaries have sufficient interests
in all trademarks, service marks, trade names, patents, patent rights,
licenses, inventions, know-how, copyrights, trade secrets, confidential
information and other intellectual property (collectively, "intellectual
property") necessary to conduct the business now operated by them, or
presently employed by them. The Company and its subsidiaries are not
aware of any rights of third parties to any such intellectual property,
and the Company and its subsidiaries are not aware of any infringement,
misappropriation or violation by others of, or conflict by others with
asserted rights of the Company with respect to, any intellectual
property of the Company. The Company has had U.S. Patent No. 5,451,998
(hereinafter "the `998 patent") brought to its attention. The Company
retained independent outside counsel, which outside counsel provided the
Company with a written opinion concerning the `998 patent. Without
limiting the generality of the foregoing, (i) there are no United States
or foreign patents known to the Company that the Company believes to be
both
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<PAGE>
valid and infringed by the present activities of the Company and its
subsidiaries or to have been valid and infringed by their past
activities, or which the Company believes would preclude the pursuit of
its business and business strategy as described in the Prospectus to any
material extent, (ii) except as described in the Prospectus, there is no
pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim challenging the validity, enforceability or scope of
the Company's rights in or to any of the Company's or its subsidiaries'
intellectual property, and (iii) except as described in the Prospectus,
there is no pending or, to the Company's knowledge, threatened action,
suit, proceeding or claim by any other person or entity that the Company
or any of its subsidiaries has infringed, misappropriated or otherwise
violated, or is infringing, misappropriating or violating, any
intellectual property rights of any other person or entity, which, if
determined adversely, could have a Material Adverse Effect.
(o) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating
to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse
Effect; and the Company is not aware of any pending investigation which
might lead to such a claim.
(p) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or (to the Company's knowledge)
affecting the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement,
or which are otherwise material in the context of the sale of the
Offered Securities; and no such actions, suits or proceedings are
threatened or, to the Company's knowledge, contemplated.
(q) The financial statements and the related notes and schedules
included in each Registration Statement and the Prospectus present
fairly the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates shown and the results of
operations and cash flows of the Company and its consolidated
subsidiaries for the periods shown, and such financial statements have
been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis throughout
the periods involved; the schedules included in each Registration
Statement present fairly the information required to be stated therein;
and the assumptions used in preparing the pro forma financial statements
included in each Registration Statement and the Prospectus provide a
reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the
related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(r) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event which
could reasonably be expected to result in a material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Prospectus, there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
-5-
<PAGE>
(s) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(t) The Agreement and Plan of Merger dated _________, 1999 (the
"Plan of Merger") by and between the Company and Fogdog, Inc., a
California corporation ("Fogdog California"), has been duly authorized
by all necessary board of directors and stockholder action on the part
of the Company and Fogdog California and has been duly executed and
delivered by each of the parties thereto. The execution and delivery of
the Plan of Merger and the consummation of the merger contemplated
thereby did not and does not contravene any statute, rule, regulation,
judgment, decree or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company or
Fogdog California or any of their properties, or any agreement or
instrument to which the Company or Fogdog California is a party or by
which either of them is bound or to which any of their properties is
subject (except for instances of contravention which would not have a
Material Adverse Effect), or the certificate of incorporation or bylaws
of the Company or the articles of incorporation or bylaws of Fogdog
California, and no consent, approval, authorization or order of or
qualification with any governmental agency or body or court is required
for the performance by the Company or Fogdog California of its
respective obligations under the Plan of Merger except such as have been
obtained and such whose absence would not have a Material Adverse
Effect.
(u) At least __% of all outstanding Securities, and all
securities convertible into or exercisable or exchangeable for
Securities (including all holders of greater than 0.5% of such
securities), are subject to valid and binding agreements (collectively,
"Lock-Up Agreements") that restrict the holders thereof from offering to
sell, selling, contracting to sell, pledging or otherwise disposing of,
directly or indirectly, any Securities or any such securities
convertible into or exercisable or exchangeable for Securities, or
entering into any swap or similar agreement that transfers, in whole or
in part, the economic risk of ownership of any Securities, or publicly
disclosing any intention to do any of the foregoing, for a period of 180
days after the initial public offering of Offered Securities, without
the prior written consent of Credit Suisse First Boston Corporation; and
substantially all remaining Securities and securities convertible into
or exercisable or exchangeable for Securities are subject to
restrictions on offers, sales and other transfers in other agreements
with the Company (which the Company agrees not to release during the
foregoing 180-day period) substantially similar to the Lock-up
Agreements.
(v) To the knowledge of the Company, except as set forth in each
Registration Statement and the Prospectus, there are no agreements,
claims, payment, issuances, arrangements or understandings, whether oral
or written, for services in the nature of finder's, consulting or
origination fees with respect to the sale of the Offered Securities or
any other arrangements, agreements, understandings, payments or issuance
with respect to the Company or any of its officers, directors,
shareholders, partners, employees, subsidiaries or affiliates that may
affect the Underwriters' compensation as determined by the National
Association of Securities Dealers, Inc. (the "NASD").
(w) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection
with the Directed Share Program, and that (ii) no authorization,
approval, consent, license, order, registration or qualification of or
with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities law and
regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(x) The Company has not offered, or caused the Underwriters to
offer, any Offered Securities to any person pursuant to the Directed
Share Program with the specific intent to
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unlawfully influence (i) a customer or supplier of the Company to alter
the customer's or supplier's level or type of business with the Company
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
----------
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters at the office of Credit Suisse First Boston
Corporation ("CSFBC"), Eleven Madison Avenue, New York, New York 10010, against
payment of the purchase price in Federal (same day) funds by official bank check
or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to
the order of the Company at the office of Brobeck Phleger & Harrison LLP, 2200
Geng Road, Palo Alto, California, at 10:00 A.M., New York time, on
, 1999, or at such other time not later than seven full
- -----------------
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "First Closing Date". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the offering. The certificates for the Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the above office of CSFBC at least 24 hours prior to the First
Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as number
of share of Firm Securities set forth opposite such Underwriter's name bears to
the total number of shares of Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the above
office of CSFBC, against payment of the purchase price therefor in Federal (same
day) funds by official bank check or checks or wire transfer to an account at a
bank acceptable to CSFBC drawn to the order of the Company, at the above office
of Brobeck Phleger & Harrison LLP. The certificates for the Optional Securities
being purchased on each Optional Closing Date will be in definitive form, in
such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at the above office of CSFBC at a reasonable time in
advance of such Optional Closing Date.
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<PAGE>
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement, the Company
will file the Prospectus with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement and an
additional registration statement is necessary to register a portion of
the Offered Securities under the Act but the Effective Time thereof has
not occurred as of such execution and delivery, the Company will file
the additional registration statement or, if filed, will file a post-
effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on
the date of this Agreement or, if earlier, on or prior to the time the
Prospectus is printed and distributed to any Underwriter, or will make
such filing at such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration statement
as filed or the related prospectus or the Initial Registration
Statement, the Additional Registration Statement (if any) or the
Prospectus and will not effect such amendment or supplementation without
CSFBC's consent; and the Company will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent to,
nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement covering a period of at least
12 months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of
the Company's fiscal year, "Availability Date" means the 90th day after
the end of such fourth fiscal quarter.
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<PAGE>
(e) The Company will furnish to the Representatives copies of
each Registration Statement (five of which will be signed and will
include all exhibits), each related preliminary prospectus, and, so long
as a prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC reasonably requests.
The Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and will continue such qualifications in effect so long
as required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing fees
and other expenses (including fees and disbursements of counsel)
incurred in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions as CSFBC designates and the
printing of memoranda relating thereto, for the filing fee incident to,
and the reasonable fees and disbursements of counsel to the Underwriters
in connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company
in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except grants of employee stock options
pursuant to the terms of a plan in effect on the date hereof, and
issuances of Securities pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date
hereof.
(j) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months (or such longer
period as may be required by the NASD or the Commission) following the
date of the effectiveness of the Registration Statement. The Designated
Underwriter will notify the Company as to which Participants will need
to be so restricted. The Company will direct the transfer agent to place
stop transfer restrictions upon such securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the Underwriters in connection with the Directed Share
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<PAGE>
Program. Furthermore, the Company covenants with the Underwriters that
the Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed
Share Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included in the Registration
Statements comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review
of interim financial information as described in Statement of
Auditing Standards No. 71, Interim Financial Information, on the
unaudited financial statements included in the Registration
Statements;
(iii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included
in the Registration Statements do not comply as to form
in all material respects with the applicable accounting
requirements of the Act and the related published Rules
and Regulations or any material modifications should be
made to such unaudited financial statements for them to
be in conformity with generally accepted accounting
principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a subsequent
specified date not more than three business days prior
to the date of such letter, there was any change in the
capital stock or any increase in short-term indebtedness
or long-term debt of the Company and its consolidated
subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any
decrease in consolidated net current assets or net
assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; or
(C) for the period from the closing date of the
latest income statement included in the Prospectus to
the closing date of the latest available income
statement read by such accountants there were any
decreases, as compared with the corresponding period of
the previous year and with the
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<PAGE>
period of corresponding length ended the date of the
latest income statement included in the Prospectus, in
consolidated net sales or net operating income or in the
total or per share amounts of consolidated net income,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statements
(in each case to the extent that such dollar amounts,
percentages and other financial information are derived from the
general accounting records of the Company and its subsidiaries
subject to the internal controls of the Company's accounting
system or are derived directly from such records by analysis or
computation) with the results obtained from inquiries, a reading
of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement
with such results, except as otherwise specified in such letter.
(v) At our request, they have
(A) Read the unaudited pro forma consolidated
balance sheet as of September 30, 1999, and the unaudited pro
forma consolidated statements of operations for the year ended
December 31, 1998, and the nine months ended September 30, 1999,
included in the Registration Statement.
(B) Inquired of certain officials of the company
and of Sports Universe, Inc. who have responsibility for
financial and accounting matters about
(1) The basis for their determination of
the pro forma adjustments, and
(2) Whether the unaudited pro forma
condensed consolidated financial statements
referred to in (A) comply as to form in all
material respects with the applicable accounting
requirements of rule 11-02 of Regulation S-X.
(C) Proved the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the unaudited pro forma condensed
consolidated financial statements.
(vi) Nothing came to their attention as a result of the
procedures specified in clause(v) above, however, that caused
them to believe that the unaudited pro forma condensed
consolidated financial statements referred to in clause (v)(A)
included in the Registration Statement do not comply as to form
in all material respects with the applicable accounting
requirements of rule 11-02 of Regulation S-X and that the pro
forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements.
For purposes of this subsection 6(a), (i) if the Effective Time
of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, "Registration
Statements" shall mean the initial registration statement as
proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii)
if the Effective Time of the Initial Registration Statement is
prior to the
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<PAGE>
execution and delivery of this Agreement but the Effective Time
of the Additional Registration is subsequent to such execution
and delivery, "Registration Statements" shall mean the Initial
Registration Statement and the additional registration statement
as proposed to be filed or as proposed to be amended by the
post-effective amendment to be filed shortly prior to its
Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or such later date as shall have
been consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have
been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated
by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company and
its subsidiaries taken as one enterprise which, in the judgment of a
majority in interest of the Underwriters including the Representatives,
is material and adverse and makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and
payment for the Offered Securities; (ii) any downgrading in the rating
of any debt securities or preferred stock of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that
any such organization has under surveillance or review its rating of any
debt securities or preferred stock of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any
material suspension or material limitation of trading in securities
generally on the New York Stock Exchange or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress
or any other substantial national or international calamity or emergency
if, in the judgment of a majority in interest of the Underwriters
including the Representatives, the effect of any such outbreak,
escalation, declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the public offering or the
sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the
Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as
a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, other than
where the failure to be so qualified or in good standing would
not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole (such counsel being entitled to
rely in respect of the opinion in this clause (i) upon a
certificate of good standing from the Delaware Secretary
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<PAGE>
of State and certificates from applicable Secretaries of State
of States other than Delaware);
(ii) The Offered Securities have been duly authorized
and, when issued, delivered to and paid for by the Underwriters
in accordance with the terms of this Agreement will be duly
authorized and validly issued, fully paid and nonassessable and
conform to the description thereof contained in the Prospectus;
all other outstanding shares of the Common Stock of the Company
have been duly authorized and are validly issued and (to such
counsel's knowledge) are fully paid and nonassessable; and the
stockholders of the Company have no preemptive rights arising
under the Company's Certificate of Incorporation or by-laws or
, to such counsel's knowledge, otherwise with respect to the
Securities;
(iii) To the best of such counsel's knowledge, there
are no contracts, agreements or understandings between the
Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities
in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act,
other than such rights as have been waived or are described in
the Prospectus;
(iv) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application
of the proceeds thereof as described in the Prospectus, will not
be an "investment company" as defined in the Investment Company
Act of 1940.
(v) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required for the consummation of the transactions contemplated
by this Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required
under state securities laws;
(vi) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or
any court having jurisdiction over the Company or any subsidiary
of the Company or any of their properties, or any agreement or
instrument that is an exhibit to the Registration Statement to
which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of
the properties of the Company or any such subsidiary is subject
(other than any breach, violation or default that could not
reasonably be expected to have a Material Adverse Effect), or
the charter or by-laws of the Company or any such subsidiary;
and the Company has the corporate power and authority to
authorize, issue and sell the Offered Securities as contemplated
by this Agreement;
(vii) To such counsel's knowledge, based on oral advice
from the staff of the Commission, the Initial Registration
Statement was declared effective under the Act, the Additional
Registration Statement (if any) was filed and became effective
under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with
the Commission pursuant to the subparagraph of Rule 424(b)
specified in such opinion within the time period required by
Rule 424(b) or was included in the Initial Registration
Statement or the Additional Registration Statement (as the case
may be), and, to the best of the knowledge of such counsel based
on the oral advice of the staff of the Commission, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been
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<PAGE>
instituted or are pending or contemplated under the Act, and
each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any
part of a Registration Statement or any amendment thereto, as of
its effective date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or
any amendment or supplement thereto, as of its issue date or as
of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; the
descriptions in the Registration Statements and Prospectus of
statutes, legal and governmental proceedings and contracts and
other documents are accurate and fairly present the information
required to be shown; and such counsel do not know of any legal
or governmental proceedings to which the Company or any of its
subsidiaries or properties is subject which are required to be
described in a Registration Statement or the Prospectus (or any
amendment or supplement thereto) which are not described as
required or of any contracts or documents of a character
required to be described in a Registration Statement or the
Prospectus (or any amendment or supplement thereto) or to be
filed as exhibits to a Registration Statement which are not
described and filed as required; it being understood that such
counsel need express no opinion as to the financial statements
or other financial data contained in the Registration Statements
or the Prospectus;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) All of the Offered Securities have been duly
approved for quotation on the Nasdaq National Market, subject to
official notice of issuance; and
(x) The statements in the Prospectus under the caption
"Description of Capital Stock," insofar as such statements
purport to summarize certain provisions of the capital stock and
warrants of the Company and certain provisions of the
registration rights agreements described therein, under the
caption "Management-Benefit Plans" and "-Employment Contracts,
Termination of Employment Arrangements and Change in Control
Arrangements," insofar as such statements purport to describe
the provisions of the documents referred to therein, have been
reviewed by such counsel and are correct and complete in all
material respects.
(e) The Representatives shall have received from Pillsbury
Madison & Sutro LLP, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable investigation,
shall state that: the representations and warranties of the Company in
this Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was
-14-
<PAGE>
filed pursuant to Rule 462(b), including payment of the applicable
filing fee in accordance with Rule 111(a) or (b) under the Act, prior to
the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the dates of the most recent financial statements in
the Prospectus, there has been no material adverse change, nor any
development or event involving a prospective material adverse change, in
the condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole except
as set forth in or contemplated by the Prospectus or as described in
such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements
of subsection (a) of this Section, except that the specified date
referred to in such subsection will be a date not more than three days
prior to such Closing Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each
Underwriter, its partners, directors and officers and each person, if
any, who controls such Underwriter within the meaning of Section 15 of
the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance upon
and in conformity with written information furnished to the Company by
any Underwriter through the Representatives specifically for use
therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as
such in subsection (b) below.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated
Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act (the "Designated Entities"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material
fact contained in any material prepared by or with the consent of the
Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; (ii) caused by the failure
of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising
out of, or in connection with the Directed Share Program, other than
losses, claims, damages or liabilities (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify
and hold harmless the Company, its directors and officers and each
person, if any who controls the Company within the
-15-
<PAGE>
meaning of Section 15 of the Act, against any losses, claims, damages or
liabilities to which the Company may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein,
and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished by
any Underwriter consists of (i) the following information in the
Prospectus furnished on behalf of each Underwriter: the concession and
reallowance figures appearing in the fourth paragraph under the caption
"Underwriting," and the information contained in the sixth and
thirteenth paragraphs under the caption "Underwriting"; and (ii) the,
following information in the Prospectus furnished on behalf of Thomas
Weisel Partners LLC: the information contained in the twelfth paragraph
under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) or (b), notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under subsection (a) or (b)
above. In case any such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party),
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation. Notwithstanding anything contained herein to the
contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7 (a) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the
indemnifying party shall be liable for the reasonable fees and expenses
of not more than one separate firm (in addition to any local counsel)
for the Designated Underwriter for the defense of any losses, claims,
damages and liabilities arising out of the Directed Share Program, and
all persons, if any, who control the Designated Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange
Act. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement (i) includes an unconditional
release of such indemnified party from all liability on any claims that
are the subject matter of such action and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to
act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and the Underwriters on the other from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is
-16-
<PAGE>
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the
first sentence of this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding the provisions of
this subsection (d), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be
in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section shall be in addition
to any liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each director
of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of share of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of share of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the
-17-
<PAGE>
several Underwriters set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the Company or any
of their respective representatives, officers or directors or any controlling
person, and will survive delivery of and payment for the Offered Securities. If
this Agreement is terminated pursuant to Section 8 or if for any reason the
purchase of the Offered Securities by the Underwriters is not consummated, the
Company shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 5 and the respective obligations of the Company and the
Underwriters pursuant to Section 7 shall remain in effect, and if any Offered
Securities have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the Offered Securities by the Underwriters is not consummated
for any reason other than solely because of the termination of this Agreement
pursuant to Section 8 or the occurrence of any event specified in clause (iii),
(iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New
York, N.Y. 10010-3629, Attention: Investment Banking Department--Transactions
Advisory Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 500 Broadway, Redwood City, CA 94063,
Attention: Chief Financial Officer; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and
confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC alone will be
binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-18-
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
FogDog, Inc.
By
------------------------------
Name
----------------------------
Title
---------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
Credit Suisse First Boston Corporation
J.P. Morgan Securities Inc.
Thomas Weisel Partners LLC
Warburg Dillon Read LLC
Acting on behalf of
themselves and as the
Representatives of the
several Underwriters
by Credit Suisse First Boston Corporation
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
-19-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation......................................
J.P. Morgan Securities Inc..................................................
Thomas Weisel Partners LLC..................................................
Warburg Dillon Read LLC.....................................................
===============
Total........................................................ 6,000,000
===============
</TABLE>
-20-
<PAGE>
EXHIBIT 4.5
EXECUTION COPY
FOGDOG, INC.
____________________________
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
____________________________
March 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Authorization, Issuance and Sale of Securities.............................. 1
1.1 Authorization......................................................... 1
1.2 Issuance and Sale of Series C Preferred Stock......................... 1
1.3 Closing............................................................... 1
2. Representations and Warranties of the Company............................... 2
2.1 Organization, Good Standing and Qualification......................... 2
2.2 Capitalization........................................................ 2
2.3 Subsidiaries, Etc..................................................... 3
2.4 Shareholder List and Agreements....................................... 3
2.5 Issuance of Securities................................................ 3
2.6 Authority for Agreement............................................... 3
2.7 Governmental Consents................................................. 4
2.8 Litigation............................................................ 4
2.9 Employee Proprietary Information and Inventions Agreements............ 4
2.10 Acquisitions of the Company........................................... 4
2.11 Absence of Liabilities................................................ 4
2.12 Financial Statements.................................................. 4
2.13 Taxes................................................................. 5
2.14 Property and Assets................................................... 5
2.15 Intellectual Property................................................. 5
2.16 Material Contracts and Obligations.................................... 5
2.17 Compliance............................................................ 6
2.18 Books and Records..................................................... 6
2.19 Disclosures........................................................... 6
2.20 Changes............................................................... 6
2.21 Year 2000 Compliance.................................................. 6
2.22 Qualified Small Business Stock........................................ 7
2.23 Business Plan......................................................... 7
3. Representations and Warranties of the Investors............................. 7
3.1 Authorization......................................................... 7
3.2 Purchase Entirely for Own Account..................................... 8
3.3 Disclosure of Information............................................. 8
3.4 Investment Experience................................................. 8
3.5 Accredited Investor................................................... 8
3.6 Restricted Securities................................................. 8
3.7 Further Limitations on Disposition.................................... 8
3.8 Legends............................................................... 9
3.9 Transfer of Rights.................................................... 9
4. Conditions to the Investors' Obligations at the Closing.....................10
4.1 Representations and Warranties........................................10
4.2 Covenants.............................................................10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4.3 Compliance Certificate................................................10
4.4 Proceedings...........................................................10
4.5 Consents and Approvals................................................10
4.6 Bylaws................................................................10
4.7 Board of Directors....................................................10
4.8 Second Amended and Restated Articles of Incorporation.................10
4.9 Registration Rights Agreement.........................................11
4.10 Shareholders Agreement................................................11
4.11 Voting Agreement......................................................11
4.12 Opinion of Counsel....................................................11
4.13 Minimum Amount of Subscriptions.......................................11
5. Conditions of the Company's Obligations at Closing..........................11
5.1 Representations and Warranties........................................11
5.2 Payment of Purchase Price.............................................11
5.3 Qualifications........................................................11
5.4 Minimum Amount of Subscriptions.......................................11
6. Covenants of the Company....................................................11
6.1 Financial Statements and Other Information............................12
6.2 Inspection of Property................................................12
6.3 Inspection and Visitation Rights......................................12
6.4 Limit on Information..................................................13
6.5 Option Grants.........................................................13
6.6 Qualified Small Business Stock........................................13
7. Miscellaneous...............................................................13
7.1 Survival of Representations, Warranties, Covenants and Agreements.....13
7.2 Notices...............................................................13
7.3 Expenses..............................................................15
7.4 RESERVED..............................................................15
7.5 Entire Agreement; Waivers and Amendments..............................15
7.6 Successors and Assigns................................................15
7.7 Severability..........................................................15
7.8 Governing Law.........................................................15
7.9 Strict Construction...................................................15
7.10 Captions..............................................................16
7.11 Counterparts..........................................................16
7.12 Broker's Fees.........................................................16
</TABLE>
Exhibits
A Second Amended and Restated Articles of Incorporation
B Form of Second Amended and Restated Registration Rights Agreement
C Form of Amended and Restated Shareholders Agreement
D Form of Amended and Restated Voting Agreement
E Opinion of Counsel to the Company
F Form of Employee Proprietary Information and Inventions Agreement
ii
<PAGE>
Schedules
- ---------
A Schedule of Investors
B Disclosure Schedule
iii
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made
as of March 3, 1999 by and among Fogdog, Inc., a California corporation
(formerly known as Cedro Group, Inc.) (the "Company") and the investors listed
on the signature pages hereof (individually, an "Investor" and collectively, the
"Investors").
W I T N E S S E T H:
WHEREAS, the Company wishes to sell to the Investors, and the
Investors wish to purchase from the Company, shares of the Company's Series C
Preferred Stock, no par value per share (the "Series C Preferred Stock") subject
to the terms and in the manner further set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Company, the parties hereto hereby agree as follows:
1. Authorization, Issuance and Sale of Securities.
----------------------------------------------
1.1 Authorization. The Company has authorized the issuance and sale
-------------
pursuant to the terms hereof of an aggregate of Fifteen Million Five Hundred
Forty-Three Thousand Thirty-Four (15,543,034) shares of Series C Preferred
Stock, at a purchase price of $1.0294 per share. The rights, preferences and
privileges of the Series C Preferred Stock shall be as set forth in the Second
Amended and Restated Articles of Incorporation (the "Restated Articles") in
substantially the form of Exhibit A attached hereto.
---------
1.2 Issuance and Sale of Series C Preferred Stock. Subject to the
---------------------------------------------
terms and conditions hereof, at the Closing (as defined below) the Company will
issue and sell to the Investors and the Investors will purchase from the Company
the number of shares of Series C Preferred Stock set forth opposite each
Investor's name on Schedule A.
----------
1.3 Closing.
-------
(a) The closing of the transactions contemplated herein (the "Initial
Closing") shall take place at the offices of Brobeck, Phleger & Harrison LLP,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California at 10:00 a.m. local
time on March 3, 1999, or at such other time and place as may be mutually agreed
upon by the Company and the Investors. The date on which the Closing occurs is
referred to herein as the "Closing Date." Up to Twelve Million Six Hundred
Twenty-Eight Thousand Seven Hundred Sixteen (12,628,716) shares of Series C
Preferred Stock will be issued and sold at the Initial Closing.
(b) Subject to the terms and conditions of this Agreement and
approval by the Company's Board of Directors, the Company may sell, at a
subsequent closing or closings taking place within thirty (30) days of the
Initial Closing, up to the balance of such shares of Series C Preferred Stock
authorized by the Company to such persons or entities as the Company may
<PAGE>
determine, at the same price per share as the Series C Preferred Stock purchased
and sold at the Initial Closing. Any such sale shall be upon the same terms and
conditions as those contained herein, and such persons or entities shall become
parties to this Agreement, the Second Amended and Restated Registration Rights
Agreement (as defined below) the Second Amended and Restated Shareholders'
Agreement (as defined below) and the Voting Agreement (as defined below) and
shall have the rights and obligations set forth hereunder and thereunder. The
Initial Closing and any subsequent closings shall each be referred to as a
"Closing."
(c) At each Closing, the Company shall deliver to the Investors
participating therein certificates evidencing the number of shares of Series C
Preferred Stock set forth on Schedule A opposite such Investor's name against
----------
payment of the purchase price set forth on Schedule A by check or wire transfer
----------
of immediately available funds to an account designated by the Company in a
written notice delivered to such Investors prior to the Closing Date.
2. Representations and Warranties of the Company. Except as set forth in
---------------------------------------------
the Disclosure Schedule attached hereto as Schedule B, prepared by the Company,
----------
which shall be representations and warranties of the Company, the Company hereby
represents and warrants to the Investors as follows:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and each of the Ancillary Agreements (as
defined in Section 2.6 below) and to carry out the transactions contemplated by
this Agreement and each of the Ancillary Agreements. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties (a "Material Adverse Effect"). The Company has furnished
or made available to the Investors true and complete copies of the Restated
Articles and the Bylaws of the Company, each as amended to date and currently in
effect.
2.2 Capitalization. Upon the filing of the Restated Articles with
--------------
the State of California, the authorized capital stock of the Company will
consist of (i) Sixty Million (60,000,000) shares of Common Stock, no par value
per share, (the "Common Stock"), of which Seven Million Two Hundred Twenty-Three
Thousand Two Hundred Seventeen (7,223,217) shares are issued and outstanding and
Four Million Three Hundred Fifty Thousand Two Hundred Seventy-Four (4,350,274)
are reserved for issuance upon exercise of options under the Company's Amended
and Restated 1996 Stock Option Plan, as amended and in effect from time to time
(the "Option Plan"), of which options for the purchase of Three Million Eight
Hundred Fifty-Four Thousand Six Hundred Ten (3,854,610) shares have been issued,
and (ii) Twenty-Six Million Ninety-One Thousand Nine Hundred One (26,091,901)
shares of Preferred Stock, which consist of (a) Two Million Eight Hundred
Thirteen Thousand Forty-Six (2,813,046) shares of Series A Preferred Stock, no
par value per share (the "Series A Preferred Stock"), of which Two Million Six
Hundred Seventy-Nine Thousand Two Hundred Sixty-Eight (2,679,268) shares are
issued and outstanding, and (b) Nine Million Six Hundred Seventy-Eight Thousand
Seven Hundred (9,678,700) shares of Series B Preferred Stock, no par value per
share (the "Series B Preferred Stock"), all of which are issued and outstanding,
and (c) Fifteen Million Five Hundred
2
<PAGE>
Forty-Three Thousand Thirty-Four (15,543,034) shares of Series C Preferred Stock
all of which may be issued pursuant to this Agreement. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, and were issued in compliance
with all applicable securities laws. Except as contemplated by this Agreement
and except for warrants for the purchase of 220,000 shares of the Common Stock
and 133,778 shares of Series A Preferred Stock (i) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and (iii) the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. The percentage
ownership of the Company, on a fully diluted basis, represented by the Series C
Preferred Stock purchased hereunder shall be, for each Investor, as set forth
opposite such Investor's name on the Schedule of Investors attached hereto as
Schedule A.
- ----------
2.3 Subsidiaries, Etc. Except as listed on the Disclosure Schedule,
-----------------
the Company has no subsidiaries and does not own or control, directly or
indirectly, any shares of capital stock of any other corporation or any interest
in any partnership, joint venture or other non-corporate business enterprise.
2.4 Shareholder List and Agreements. The Disclosure Schedule sets
-------------------------------
forth a true and complete list of the shareholders of the Company, showing the
number of shares of capital stock or other securities of the Company held by
each shareholder as of the date of this Agreement and the Closing Date. The
Company is not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company,
except as referred to herein.
2.5 Issuance of Securities. The issuance, sale and delivery of the
----------------------
Series C Preferred Stock in accordance with this Agreement, and the issuance and
delivery of the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, have been, or will be on or prior to the Closing, duly
authorized by all necessary corporate action on the part of the Company, and all
such shares of Series C Preferred Stock and Common Stock have been duly reserved
for issuance. The Series C Preferred Stock when so issued, sold and delivered
against payment therefor in accordance with the provisions of this Agreement,
and the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, when issued upon such conversion in accordance with the Second
Restated Articles, will be duly and validly issued, fully paid and non-
assessable.
2.6 Authority for Agreement. The execution, delivery and performance
-----------------------
by the Company of this Agreement and all other agreements required to be
executed by the Company on or prior to the Closing pursuant to Section 4 of this
Agreement (the "Ancillary Agreements"), and the consummation by the Company of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action. This Agreement and the Ancillary Agreements have
been duly executed and delivered by the Company and constitute valid and
3
<PAGE>
binding obligations of the Company enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent that the indemnification provisions contained
in the Registration Rights Agreement (as defined herein) may be limited by
applicable federal or state laws. The sale of the Series C Preferred Stock, and
the subsequent conversion of the Series C Preferred Stock into Common Stock, are
not and will not be subject to any preemptive rights that have not been properly
waived or complied with.
2.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Series C Preferred Stock, or the other
transactions to be consummated at the Closing, as contemplated by this
Agreement, except such filings as shall have been made prior to and shall be
effective on and as of the Closing, and except for filings required by federal
and state securities laws.
2.8 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, threatened, which questions the validity of this Agreement or any
Ancillary Agreement or the right of the Company to enter into or perform this
Agreement or any Ancillary Agreement, or which could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect, nor is
there any litigation pending, or, to the best of the Company's knowledge,
threatened against the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgement or decree of any court or
governmental agency. The Company has not commenced nor does it currently intend
to initiate any action, suit, proceeding or investigation.
2.9 Employee Proprietary Information and Inventions Agreements. Each
-----------------------------------------------------------
current employee, officer and consultant of the Company has executed an Employee
Proprietary Information and Inventions Agreement in substantially the form
attached hereto as Exhibit F. The Company is not aware that any of its
---------
employees, officers or consultants have excluded works or inventions made prior
to employment or retention by the Company from application under such agreement
except as set forth on then Disclosure Schedule, or that any such persons are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
2.10 Acquisitions of the Company. The Company has not engaged in
---------------------------
substantive discussions or negotiations with a third party for the sale of all
or substantially all of the assets or stock of the Company or merger of the
Company with another entity, or the exchange of any consideration in connection
with any such sale or merger, in the six months preceding the date of this
Agreement.
2.11 Absence of Liabilities. The Company has no liabilities in
----------------------
excess of $25,000 and, to the best of its knowledge, has no material contingent
liabilities.
2.12 Financial Statements. Included in the Disclosure Schedule are
--------------------
an unaudited balance sheet and income statement at January 31, 1999, together
with related statements of operations, shareholders' equity and cash flow for
the fiscal year then ended
4
<PAGE>
(collectively, the "Financial Statements"). Such Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
except that the Financial Statements do not contain all footnotes required by
GAAP and are subject to normal year-end audit adjustments that in the aggregate
will not be material. The Financial Statements (a) are complete and correct in
all material respects, (b) are in accordance with the Company's books and
records, and (c) fairly present the financial condition and operating results of
the Company as of the dates, and for the periods indicated therein, subject to
normal year-end audit adjustments.
2.13 Taxes. The Company has filed all federal, state and foreign tax
-----
returns which are required to be filed by it on or prior to the Closing Date,
such returns are true and correct and all taxes shown thereon to be due have
been timely paid with exceptions not material to the Company. Income tax returns
of the Company have not been audited by the Internal Revenue Service or any
equivalent state agency or instrumentality, and no controversy with respect to
taxes of any type is pending or, to the best of the Company's knowledge,
threatened.
2.14 Property and Assets. The Company has good title to or a valid
-------------------
leasehold interest in all of its properties and assets, which comprise all of
the properties and assets necessary or useful for the conduct of its business
and none of such properties or assets is subject to any mortgage, pledge, lien,
security interest, lease, charge or encumbrance other than those the material
terms of which are described on the Disclosure Schedule, or as would not result
in a Material Adverse Effect. The Company is in compliance with all material
terms of each lease to which it is a party or is materially bound.
2.15 Intellectual Property. Set forth on the Disclosure Schedule is
---------------------
a true and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications, trade names, copyright
registrations and licenses presently owned or used by the Company, as well as
any agreement under which the Company has access to any material confidential
information used by the Company in its business (the "Intellectual Property
Rights"). To the best of its knowledge, the Company has sufficient title and
ownership of, or license rights to, all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted without any known conflict with or infringement of the rights of
others. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the business of the Company as proposed
to be conducted.
2.16 Material Contracts and Obligations. The Disclosure Schedule
----------------------------------
sets forth a list of all material agreements or commitments of any nature to
which the Company is a party or
5
<PAGE>
by which it is bound, including without limitation (i) each agreement which
requires future expenditures by the Company in excess of $25,000 or which might
result in payments to the Company in excess of $25,000, (ii) all employment and
consulting agreements (including any agreement entitling any employee to
continued employment or any severance), employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and
arrangements, and distributor and sales representative agreements, (iii) each
agreement with any shareholder, officer or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act of 1933, as amended
(the "Securities Act")), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity, (iv) any agreement relating to the Intellectual Property Rights, and (v)
any loans or indebtedness for borrowed money, including guarantees thereof. The
Company has delivered or made available to the Investors copies of such of the
foregoing agreements as the Investors have requested. To the knowledge of the
Company, all of such agreements and contracts are valid, binding and in full
force and effect, except where the failure to so comply would not have a
Material Adverse Effect on the Company's business.
2.17 Compliance. The Company is not in violation or default of any
----------
provision of its Restated Articles or Bylaws, of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company which would have a
Material Adverse Effect. The execution, delivery and performance of this
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.18 Books and Records. The minute books of the Company contain
-----------------
complete and accurate records of all meetings and other corporate actions of its
shareholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
2.19 Disclosures. Neither this Agreement nor any exhibit hereto, nor
-----------
any report, certificate or instrument furnished to the Investors in connection
with the transactions contemplated by this Agreement, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
2.20 Changes. Since December 31, 1998, there have been no changes in
-------
the condition, financial or otherwise, net worth or results of operations of the
Company, other than changes occurring in the ordinary course of business which
changes have not, individually or in the aggregate, had a Material Adverse
Effect.
2.21 Year 2000 Compliance. The Company has undertaken an assessment
--------------------
of all of its IT Systems (as defined herein) and such systems are, or prior to
September 1, 1999 will
6
<PAGE>
be, Year 2000 Compliant (as defined herein). The Company is not aware of any
Material Third Party (as defined herein) or any material off-the-shelf software
that is used by the Company that will not be Year 2000 Compliant by September 1,
1999. For purposes of this Section 2.21: (a) "Year 2000 Compliant" shall mean
that the IT Systems will: (i) accurately process all date and time data
(including, but not limited to, calculating, comparing and sequencing)
including, without limiting the foregoing, between the years 1999 and earlier
and the years 2000 and later (in either direction, forward or backwards); (ii)
accurately process leap year calculations for date and time data; and (iii) when
used in combination with any other IT System, accurately process date and time
data if such other IT System properly exchanges date and time data with it; (b)
"IT Systems" shall mean any and all systems, facilities and devices by which
information (including data, text and images) is generated, stored, processed,
displayed, received or communicated, including computer hardware, computer
software and any machinery which incorporates a microchip; and (c) "Material
Third Party" shall mean any of the Company's information exchange partners,
suppliers, vendors and distributors that own any IT System which is material to
the Company's business.
2.22 Qualified Small Business Stock.
------------------------------
(a) As of and immediately following the Closing, the Preferred Stock
will meet each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Internal Revenue Code of
1986, as amended (the "Code"), including without limitation the following: (i)
the Company will be a domestic C corporation, (ii) the Company will not have
made any purchases of its own stock described in Code Section 1202(c)(3)(B)
during the one-year period preceding the Closing, and (iii) the Company's (and
any predecessor's) aggregate gross assets, as defined by Code Section
1202(d)(2), at no time from the date of incorporation of the Company and through
the Closing have exceeded or will exceed $50 million, taking into account the
assets of any corporations required to be aggregated with the Company in
accordance with Code Section 1202(d)(3).
(b) As of the Closing, at least 80% (by value) of the assets of the
Company are used by it in the active conduct of one or more qualified trades or
businesses, as defined by Code Section 1202(e)(3), and the Company is an
eligible corporation, as defined by Code Section 1202(e)(4).
2.23 Business Plan. The Company's business plan dated November 1998
-------------
(the "Business Plan"), as furnished to the Investors, is the Company's current
business plan and the Company currently has no intention of making any material
deviations from such Business Plan.
3. Representations and Warranties of the Investors. Each Investor hereby
-----------------------------------------------
represents and warrants as to itself to the Company that:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement and the Ancillary Agreements, and each such agreement
constitutes its valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to
7
<PAGE>
the extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series C Preferred Stock to be received by such Investor and
the Common Stock issuable upon conversion of the Series C Preferred Stock
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Securities. Such Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, Investor also represents it has not been organized
for the purpose of acquiring the Securities.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that
---------------------
immediately following its purchase of the Securities hereunder, such Securities
will be characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, such Investor
represents that it is familiar with Rule 144 as promulgated by the SEC under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 to the extent this Section is then applicable, and:
8
<PAGE>
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer (i) by an Investor that is a partnership to a partner or member of such
partnership or a retired partner or member of such partnership who retires after
the date hereof, or (ii) to the estate of any such partner or member or retired
partner or member or the transfer by gift, will or intestate succession of any
partner or member to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or member or his or her spouse, if any transferee
pursuant to (i) and (ii) above agrees in writing to be subject to the terms
hereof to the same extent as if he or she were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH SECURITIES ACT.
(b) Any legends required by the laws of the State of California, or
any other applicable jurisdiction.
(c) Any legend required by the Ancillary Agreements.
3.9 Transfer of Rights. Subject to the limitations in Section 3.8
------------------
above, all rights and obligations of the Investors in this Agreement and the
Ancillary Agreements may be transferred to (i) a partner or retired partner of
any Investor that is a partnership, (ii) any immediate family member of an
Investor who is an individual, or an irrevocable trust for the benefit of an
individual Investor or his or her immediate family members, (iii) any
shareholder of any Investor which is a corporation, (iv) any member of any
Investor who is a limited liability company, or (v) any transferee who acquires
not less than Four Hundred Eighty-Five Thousand Seven Hundred Twenty (485,720)
shares of Series C Preferred Stock, provided the following conditions are met,
9
<PAGE>
(a) the Company is given written notice of such proposed transfer;
and
(b) the transferee agrees in writing to be subject to the terms
hereof and in each of the Ancillary Agreements, including all representations
and warranties and covenants contained herein or therein to the same extent as
if he or she were an original Investor hereunder.
4. Conditions to the Investors' Obligations at the Closing. The
-------------------------------------------------------
obligations of each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective against any Investor who does not consent in
writing thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same force and effect as
though made as of the Closing.
4.2 Covenants. The Company shall have performed and complied with
---------
all covenants and agreements required to be performed or complied with by it
hereunder at or prior to the Closing.
4.3 Compliance Certificate. An officer of the Company shall deliver
----------------------
to each Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company and in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investors and their counsel.
4.5 Consents and Approvals. Except for filings pursuant to
----------------------
Regulation D under U.S. Federal securities laws and the "blue sky" laws having
jurisdiction over the sale of the Series C Preferred Stock, such filings to be
made in a timely fashion by the Company, all consents, approvals,
authorizations, licenses or orders of, registrations, qualifications,
designations, declarations or filings with, or notice to any governmental entity
or any other person necessary to be obtained, made or given in connection with
the transactions contemplated hereby shall have been duly obtained, made or
given and shall be in full force and effect, without the imposition upon the
Company of any condition, restriction or required undertaking.
4.6 Bylaws. A copy of the Company's Bylaws, as amended and in
------
effect, shall have been provided to the Investors prior to the Closing Date.
4.7 Board of Directors. Ray Rothrock shall have been duly elected
------------------
or appointed to the Board of Directors of the Company and to the audit and
compensation committees of the Board of Directors, effective at the Closing.
4.8 Second Amended and Restated Articles of Incorporation. The
-----------------------------------------------------
Company shall have filed the Restated Articles, containing the rights,
preferences and privileges of the Series C Preferred Stock, in substantially the
form attached hereto as Exhibit A.
---------
10
<PAGE>
4.9 Registration Rights Agreement. The Company shall have entered
-----------------------------
into the Second Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement"), substantially in the form of Exhibit B hereto,
---------
with the Investors and the other parties named therein, and the Registration
Rights Agreement shall be in full force and effect as of the Closing.
4.10 Shareholders Agreement. The Company shall have entered into the
----------------------
Amended and Restated Shareholders Agreement (the "Shareholders Agreement"),
substantially in the form attached as Exhibit C hereto, with the Investors and
---------
the other parties named therein, and the Shareholders Agreement shall be in full
force and effect as of the Closing.
4.11 Voting Agreement. The Company and certain shareholders of the
----------------
Company listed therein shall have executed an Amended and Restated Voting
Agreement (the "Voting Agreement"), substantially in the form attached as
Exhibit D hereto, and such Voting Agreement shall be in full force and effect as
- ---------
of the Closing.
4.12 Opinion of Counsel. The Investors shall have received the
------------------
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the
Closing Date and addressed to the Investors, with respect to the matters set
forth in Exhibit E hereto and otherwise in form and substance reasonably
---------
satisfactory to the Investors and its counsel.
4.13 Minimum Amount of Subscriptions. At the Initial Closing the
-------------------------------
Investors listed on Schedule A shall purchase not less than an aggregate of
----------
Seven Million Seven Hundred Seventy-One Thousand Five Hundred Seventeen
(7,771,517) shares of Series C Preferred Stock.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by that
Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each of the Investors contained in Section 3 shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have delivered,
-------------------------
in immediately available funds to an account designated by the Company, the
consideration specified in Schedule A.
----------
5.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.4 Minimum Amount of Subscriptions. At the Initial Closing the
-------------------------------
Investors listed on Schedule A shall purchase not less than an aggregate of
----------
Seven Million Seven Hundred Seventy-One Thousand Five Hundred Seventeen
(7,771,517) shares of Series C Preferred Stock.
6. Covenants of the Company. Until the earlier of (i) the sale of
------------------------
securities of the Company pursuant to a registration statement filed by the
Company under the Securities Act in connection with the underwritten offering of
its securities to the general public is consummated,
11
<PAGE>
(ii) the date on which the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act
of 1934, or (iii) a sale of all or substantially all of the Company's assets to,
or merger or other reorganization with, a public company (a "Transaction")
whereby the holders of the outstanding voting securities of the Company
immediately prior to the Transaction fail to hold equity securities representing
a majority of the voting securities of the Company or surviving entity
immediately following the Transaction, the Company shall comply with the
following covenants:
6.1 Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Investor, so long as such Investor and its affiliates
beneficially owns at least fifty thousand (50,000) shares of Series C Preferred
Stock issued on the date hereof to such Investor, subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations:
(a) as soon as available, but in any event within fifteen (15) days
after the end of each month, monthly unaudited consolidated statements of income
and cash flows of the Company and its subsidiaries and monthly unaudited
consolidated balance sheets of the Company and its subsidiaries, and all such
statements shall be prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, except that they may not
contain full footnote disclosures and may be subject to normal year-end
adjustments for recurring accruals;
(b) as soon as available but in any event within one hundred twenty
(120) days after the end of each fiscal year, commencing with fiscal year 1998,
audited consolidated statements of income and cash flows of the Company and its
subsidiaries for the fiscal year, and audited consolidated balance sheets of the
Company and its subsidiaries as of the end of the fiscal year, all prepared in
accordance with GAAP, consistently applied; and
(c) not fewer than thirty days, but also not greater than seventy
days prior to the end of the Company's fiscal year, an annual budget and
operating plan prepared on a monthly basis for the Company and its subsidiaries
for the following fiscal year requested (displaying anticipated statements of
income and cash flows and balance sheets), approved by the Company's Board of
Directors, and promptly upon preparation thereof any material revisions of such
annual or other budgets and operating plans.
6.2 Inspection of Property. The Company shall permit each Investor
----------------------
and its representatives, so long as an Investor and its affiliates beneficially
own at least fifty thousand (50,000) shares of Series C Preferred Stock issued
pursuant to this Agreement, subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations, upon reasonable
notice and during normal business hours and at such other times as any such
person may reasonably request subject to Section 6.4 below, to (a) examine the
corporate and financial records of the Company and its subsidiaries and make
copies thereof or extracts therefrom and (b) discuss the affairs, finances and
accounts of any such entities with the directors, officers, key employees and
independent accountants of the Company and its subsidiaries.
6.3 Inspection and Visitation Rights. Subject to Section 6.4 below,
--------------------------------
so long as an Investor and its affiliates beneficially own at least fifty
thousand (50,000) shares of Series C
12
<PAGE>
Preferred Stock issued pursuant to this Agreement, the Company shall invite one
(1) representative of Venrock Associates and Venrock Associates II, L.P. and one
(1) representative of Vertex Management, Inc. to attend all meetings of its
Board of Directors in a nonvoting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents, and other
materials that it provides to its directors. The rights granted to Investors in
this Section 6.3 shall terminate upon any initial public offering of shares of
Common Stock of the Company.
6.4 Limit on Information. Each Investor hereby agrees to hold in
--------------------
confidence and trust and not to misuse or disclose any confidential information
of the Company.
6.5 Option Grants. The Investors hereby acknowledge and agree that
-------------
the number of shares subject to the Company's stock option plans shall be
increased to reserve an additional Three Million Seven Hundred Fifty Thousand
(3,750,000) shares of Common Stock to the existing pool of shares reserved for
such stock option plans, effective upon the Closing.
6.6 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as the Securities are held by an Investor (or a transferee in whose hands
the Securities are eligible to qualify as Qualified Small Business Stock as
defined in Section 1202(c) of the Code, it will use its reasonable efforts to
cause the Securities to qualify as Qualified Small Business Stock and shall make
all filings required under Section 1202(D)(1)(c) of the Code.
7. Miscellaneous.
-------------
7.1 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements. The representations, warranties, covenants and agreements
- ----------
contained in this Agreement, any Ancillary Agreement or any exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
and supplied to the Investors by or on behalf of the Company in connection with
the transactions contemplated hereby shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
7.2 Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid), mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or transmitted by facsimile or
electronic mail (with request for immediate confirmation of receipt in a manner
customary for communications of such type and with physical delivery of the
communication being made by one of the other means specified in this Section as
promptly as practicable thereafter). Such notices, demands and other
communications shall be addressed as follows:
If to the Company:
Fogdog, Inc.
3031 Tisch Way
100 Plaza East
San Jose, CA 95128
Attention: President
Telephone: (408) 261-6222
13
<PAGE>
Telecopy : (408) 261-6226
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
David Makarechian, Esq.
Telephone: (650) 424-0160
Telecopy : (650) 496-2885
If to the Investors:
Venrock Associates and Venrock Associates II, L.P.
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Attention: Ray Rothrock
Telephone: (212) 649-5600
Telecopy: (212) 649-5788
Vertex Management Inc.
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Attention: Chua Joo Hock
Telephone: (650) 591-9300
Telecopy: (650) 591-5926
JHWhitney & Co.
630 Fifth Avenue
New York, NY 10111
Telephone: (212) 332-2400
Telecopy: (212) 332-2422
With a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Bernard Kury, Esq.
Telephone: (212) 259-7400
Telecopy: (212) 259-7402
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
14
<PAGE>
7.3 Expenses. The Company shall pay reasonable legal and due
--------
diligence fees and expenses up to an aggregate of $15,000 incurred by the
Investors arising in connection with the negotiation and execution of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby; provided however, that the Company shall not be
responsible for any such fees or expenses if the transactions contemplated by
this Agreement and the Ancillary Agreements are not consummated. The Investors
have used their best efforts to keep such expenses to a minimum. The Company
shall pay all reasonable legal fees and expenses incurred by Investors in
connection with the review of amendments, waivers, consents or approvals
requested by the Company, with respect to this Agreement or the Ancillary
Agreements (except in connection with an initial public offering of shares of
the Company's Common Stock), up to an aggregate of $2,500, per such request by
the Company.
7.4 RESERVED.
--------
7.5 Entire Agreement; Waivers and Amendments. This Agreement
----------------------------------------
(including the exhibits and schedules hereto and the documents and instruments
referred to herein, including the Ancillary Agreements) contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior written or oral agreements and understandings
with respect thereto, including the Memorandum of Terms for Private Placement of
Series C Preferred Stock dated December 1, 1998, as amended. This Agreement may
only be amended or modified, and the terms hereof may only be waived, by a
writing signed by each party hereto or, in the case of a waiver, by the party
entitled to the benefit of the terms being waived.
7.6 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.7 Severability. In the event that any provision of this Agreement
------------
shall be declared invalid or unenforceable by a court of competent jurisdiction
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
7.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of California,
without giving effect to the principles of conflicts of law thereof.
7.9 Strict Construction. This Agreement is the result of arms-length
-------------------
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
15
<PAGE>
7.10 Captions. The paragraph and subsection headings in this
--------
Agreement are inserted for convenience of reference only, and shall not affect
the interpretation of this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
considered one and the same agreement.
7.12 Broker's Fees. Each party hereto represents and warrants that
-------------
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.12 being untrue.
[The Remainder of this Page is Intentionally Left Blank]
16
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Series
C Preferred Stock Purchase Agreement to be duly executed on its behalf as of the
date first written above.
FOGDOG, INC.
By: /s/ Timothy P. Harrington
-----------------------------
Name: Timothy P. Harrington
---------------------------
Title: Chief Executive Officer
--------------------------
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
17
<PAGE>
INVESTORS:
VENROCK ASSOCIATES
By: /s/ Kimberley Rummelsburg
------------------------------
Name: Kimberley Rummelsburg
Title: General Partner
VENROCK ASSOCIATES II, L.P.
By: /s/ Kimberley Rummelsburg
------------------------------
Name: Kimberley Rummelsburg
Title: General Partner
VERTEX TECHNOLOGY FUND, LTD.
By: /s/ Lee Kheng Nam
------------------------------
By: Lee Kheng Nam
------------------------------
Its: President
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III, L.L.C.
Its General Partner
By: /s/ Michael Brooks
------------------------------
Michael Brooks
Managing Member
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
18
<PAGE>
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney Equity Partners III, L.L.C.
Its General Partner
By: /s/ Michael Brooks
------------------------------
Michael Brooks
Managing Member
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: /s/ Timothy Draper
------------------------------
By: Timothy Draper
------------------------
Its: Managing Director
-----------------------
DRAPER FISHER PARTNERS IV, L.L.C.
By: /s/ Timothy Draper
------------------------------
By: Timothy Draper
------------------------
Its: Managing Director
-----------------------
NOVUS VENTURES, L.P.
a Delaware limited partnership
By: DT Associates,
a Delaware General Partner
By: Dan Tompkins
------------------------------
Its: General Partner
-----------------------------
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
19
<PAGE>
/s/ Scott F. Wilson
---------------------------------
SCOTT F. WILSON
ENCINAL PARTNERS, L.P.
By: /s/ Harry G. Whelan III
------------------------------
By:
------------------------
Its:
-----------------------
THE KEMAJO FAMILY L.P.
By: /s/ Harry G. Whelan III
------------------------------
By:
------------------------
Its:
-----------------------
JON-CIN & SON L.P.
By: /s/ Harry G. Whelan III
------------------------------
By:
------------------------
Its:
-----------------------
THE MEIER GROUP
By: /s/ Anthony Meier
------------------------------
By: G.P.
------------------------
Its:
-----------------------
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
20
<PAGE>
HARRY GABRIEL WHELAN
By: /s/ Harry G. Whelan
------------------------------
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
21
<PAGE>
EXHIBIT 4.6
EXECUTION COPY
FOGDOG, INC.
____________________________
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
____________________________
April 16, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization, Issuance and Sale of Securities............................................ 1
1.1 Authorization...................................................................... 1
1.2 Issuance and Sale of Series C Preferred Stock...................................... 1
1.3 Closing............................................................................ 1
2. Representations and Warranties of the Company............................................. 2
2.1 Organization, Good Standing and Qualification...................................... 2
2.2 Capitalization..................................................................... 2
2.3 Subsidiaries, Etc.................................................................. 3
2.4 Shareholder List and Agreements.................................................... 3
2.5 Issuance of Securities............................................................. 3
2.6 Authority for Agreement............................................................ 3
2.7 Governmental Consents.............................................................. 4
2.8 Litigation......................................................................... 4
2.9 Employee Proprietary Information and Inventions Agreements......................... 4
2.10 Acquisitions of the Company........................................................ 4
2.11 Absence of Liabilities............................................................. 4
2.12 Financial Statements............................................................... 4
2.13 Taxes.............................................................................. 5
2.14 Property and Assets................................................................ 5
2.15 Intellectual Property.............................................................. 5
2.16 Material Contracts and Obligations................................................. 5
2.17 Compliance......................................................................... 6
2.18 Books and Records.................................................................. 6
2.19 Disclosures........................................................................ 6
2.20 Changes............................................................................ 6
2.21 Year 2000 Compliance............................................................... 6
2.22 Qualified Small Business Stock..................................................... 7
2.23 Business Plan...................................................................... 7
3. Representations and Warranties of the Investors........................................... 7
3.1 Authorization...................................................................... 7
3.2 Purchase Entirely for Own Account.................................................. 8
3.3 Disclosure of Information.......................................................... 8
3.4 Investment Experience.............................................................. 8
3.5 Accredited Investor................................................................ 8
3.6 Restricted Securities.............................................................. 8
3.7 Further Limitations on Disposition................................................. 8
3.8 Legends............................................................................ 9
3.9 Transfer of Rights................................................................. 9
4. Conditions to the Investors' Obligations at the Closing................................... 10
4.1 Representations and Warranties..................................................... 10
4.2 Covenants.......................................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.3 Compliance Certificate............................................................. 10
4.4 Proceedings........................................................................ 10
4.5 Consents and Approvals............................................................. 10
4.6 Bylaws............................................................................. 10
4.7 Board of Directors................................................................. 10
4.8 Certificate of Amendment to the Amended and Restated Articles of Incorporation.... 10
4.9 Registration Rights Agreement...................................................... 11
4.10 Shareholders Agreement............................................................. 11
4.11 Voting Agreement................................................................... 11
4.12 Opinion of Counsel................................................................. 11
4.13 Intel Development Agreement........................................................ 11
5. Conditions of the Company's Obligations at Closing........................................ 11
5.1 Representations and Warranties..................................................... 11
5.2 Payment of Purchase Price.......................................................... 11
5.3 Qualifications..................................................................... 11
5.4 Intel Development Agreement........................................................ 11
6. Covenants of the Company.................................................................. 11
6.1 Financial Statements and Other Information......................................... 12
6.2 Inspection of Property............................................................. 12
6.3 Inspection and Visitation Rights................................................... 12
6.4 Limit on Information............................................................... 13
6.5 Option Grants...................................................................... 13
6.6 Qualified Small Business Stock..................................................... 13
6.7 Confidentiality and Non-Disclosure................................................. 13
7. Miscellaneous............................................................................. 15
7.1 Survival of Representations, Warranties, Covenants and Agreements.................. 15
7.2 Notices............................................................................ 15
7.3 Expenses........................................................................... 16
7.4 Dispute Resolution................................................................. 17
7.5 Entire Agreement; Waivers and Amendments........................................... 17
7.6 Successors and Assigns............................................................. 17
7.7 Severability....................................................................... 17
7.8 Governing Law...................................................................... 18
7.9 Strict Construction................................................................ 18
7.10 Captions........................................................................... 18
7.11 Counterparts....................................................................... 18
7.12 Broker's Fees...................................................................... 18
</TABLE>
Exhibits
A Certificate of Amendment to the Amended and Restated Articles of
Incorporation
B Form of Second Amended and Restated Registration Rights Agreement
C Form of Amended and Restated Shareholders Agreement
D Form of Amended and Restated Voting Agreement
E Opinion of Counsel to the Company
ii
<PAGE>
F Form of Employee Proprietary Information and Inventions Agreement
G Form of CITR
Schedules
- ---------
A Schedule of Investors
B Disclosure Schedule
Fogdog, Inc. Series C Preferred Stock Purchase Agreement
iii
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made
as of April 16, 1999 by and among Fogdog, Inc., a California corporation
(formerly known as Cedro Group, Inc.) (the "Company") and the investors listed
on the signature pages hereof (individually, an "Investor" and collectively, the
"Investors").
W I T N E S S E T H:
WHEREAS, the Company wishes to sell to the Investors, and the
Investors wish to purchase from the Company, shares of the Company's Series C
Preferred Stock, no par value per share (the "Series C Preferred Stock") subject
to the terms and in the manner further set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Company, the parties hereto hereby agree as follows:
1. Authorization, Issuance and Sale of Securities.
----------------------------------------------
1.1 Authorization. The Company has authorized the issuance and sale
-------------
pursuant to the terms hereof of an aggregate of Seventeen Million Five Hundred
Sixty-Eight Thousand Six Hundred Eighty (17,568,680) shares of Series C
Preferred Stock, at a purchase price of $1.0294 per share. The rights,
preferences and privileges of the Series C Preferred Stock shall be as set forth
in the Certificate of Amendment to the Amended and Restated Articles of
Incorporation (the "Restated Articles") in substantially the form of Exhibit A
attached hereto.
1.2 Issuance and Sale of Series C Preferred Stock. Subject to the
---------------------------------------------
terms and conditions hereof, at the Closing (as defined below) the Company will
issue and sell to the Investors and the Investors will purchase from the Company
the number of shares of Series C Preferred Stock set forth opposite each
Investor's name on Schedule A.
----------
1.3 Closing.
-------
(a) The closing of the transactions contemplated herein (the
"Closing") shall take place at the offices of Brobeck, Phleger & Harrison LLP,
Two Embarcadero Place, 2200 Geng Road, Palo Alto, California at 10:00 a.m. local
time on April 16, 1999, or at such other time and place as may be mutually
agreed upon by the Company and the Investors. The date on which the Closing
occurs is referred to herein as the "Closing Date."
(b) Subject to the terms and conditions of this Agreement and approval
by the Company's Board of Directors, the Company may sell, at a subsequent
closing or closings taking place within thirty (30) days of the Closing, up to
the balance of such shares of Series C Preferred Stock authorized by the Company
to such persons or entities as the Company may determine, at the same price per
share as the Series C Preferred Stock purchased and sold at the Closing. Any
such sale shall be upon the same terms and conditions as those contained herein,
1
<PAGE>
and such persons or entities shall become parties to this Agreement, the Second
Amended and Restated Registration Rights Agreement (as defined below) the Second
Amended and Restated Shareholders' Agreement (as defined below) and the Voting
Agreement (as defined below) and shall have the rights and obligations set forth
hereunder and thereunder. The Closing and any subsequent closings shall each be
referred to as a "Closing."
(c) At each Closing, the Company shall deliver to the Investors
participating therein certificates evidencing the number of shares of Series C
Preferred Stock set forth on Schedule A opposite such Investor's name against
----------
payment of the purchase price set forth on Schedule A by check or wire transfer
----------
of immediately available funds to an account designated by the Company in a
written notice delivered to such Investors prior to the Closing Date.
2. Representations and Warranties of the Company. Except as set forth in
---------------------------------------------
the Disclosure Schedule attached hereto as Schedule B, prepared by the Company,
which shall be representations and warranties of the Company, the Company hereby
represents and warrants to the Investors as follows:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and each of the Ancillary Agreements (as
defined in Section 2.6 below) and to carry out the transactions contemplated by
this Agreement and each of the Ancillary Agreements. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties (a "Material Adverse Effect"). The Company has furnished
or made available to the Investors true and complete copies of the Restated
Articles and the Bylaws of the Company, each as amended to date and currently in
effect.
2.2 Capitalization. Upon the filing of the Restated Articles with the
--------------
State of California, the authorized capital stock of the Company will consist of
(i) Sixty Million (60,000,000) shares of Common Stock, no par value per share,
(the "Common Stock"), of which Seven Million Four Hundred Forty-Three Thousand
Two Hundred Seventeen (7,443,217) shares are issued and outstanding and Eight
Million One Hundred Thousand Two Hundred Seventy-Four (8,100,274) are reserved
for issuance upon exercise of options under the Company's Amended and Restated
1996 Stock Option Plan, as amended and in effect from time to time (the "Option
Plan"), of which options for the purchase of Six Million Fifty-Two Thousand
Seven Hundred Ten (6,052,710) shares have been issued, and (ii) Thirty Million
Sixty Thousand Four Hundred Twenty-Six (30,060,426) shares of Preferred Stock,
which consist of (a) Two Million Eight Hundred Thirteen Thousand Forty-Six
(2,813,046) shares of Series A Preferred Stock, no par value per share (the
"Series A Preferred Stock"), of which Two Million Six Hundred Seventy-Nine
Thousand Two Hundred Sixty-Eight (2,679,268) shares are issued and outstanding,
(b) Nine Million Six Hundred Seventy-Eight Thousand Seven Hundred (9,678,700)
shares of Series B Preferred Stock, no par value per share (the "Series B
Preferred Stock"), all of which are issued and outstanding, and (c) Seventeen
Million Five Hundred Sixty-Eight Thousand Six Hundred Eighty (17,568,680) shares
of Series C Preferred Stock, of which Nine Million Five Hundred Sixty-Eight
Thousand Six Hundred Eighty-One (9,568,681) shares are
2
<PAGE>
issued and outstanding and the balance of which may be issued pursuant to this
Agreement. All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in compliance with all applicable securities
laws. Except as contemplated by this Agreement and except for warrants for the
purchase of 97,144 shares of Common Stock and 133,778 shares of Series A
Preferred Stock (i) no subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the Company has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. The percentage ownership of the Company, on a
fully diluted basis, represented by the Series C Preferred Stock purchased
hereunder shall be, for each Investor, as set forth opposite such Investor's
name on the Schedule of Investors attached hereto as Schedule A.
----------
2.3 Subsidiaries, Etc. Except as listed on the Disclosure Schedule, the
------------------
Company has no subsidiaries and does not own or control, directly or indirectly,
any shares of capital stock of any other corporation or any interest in any
partnership, joint venture or other non-corporate business enterprise.
2.4 Shareholder List and Agreements. The Disclosure Schedule sets forth
--------------------------------
a true and complete list of the shareholders of the Company, showing the number
of shares of capital stock or other securities of the Company held by each
shareholder as of the date of this Agreement and the Closing Date. The Company
is not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company,
except as referred to herein.
2.5 Issuance of Securities. The issuance, sale and delivery of the
----------------------
Series C Preferred Stock in accordance with this Agreement, and the issuance and
delivery of the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, have been, or will be on or prior to the Closing, duly
authorized by all necessary corporate action on the part of the Company, and all
such shares of Series C Preferred Stock and Common Stock have been duly reserved
for issuance. The Series C Preferred Stock when so issued, sold and delivered
against payment therefor in accordance with the provisions of this Agreement,
and the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, when issued upon such conversion in accordance with the Second
Restated Articles, will be duly and validly issued, fully paid and non-
assessable.
2.6 Authority for Agreement. The execution, delivery and performance by
-----------------------
the Company of this Agreement and all other agreements required to be executed
by the Company on or prior to the Closing pursuant to Section 4 of this
Agreement (the "Ancillary Agreements"), and the consummation by the Company of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action. This Agreement and the Ancillary Agreements have
been duly executed and delivered by the Company and constitute valid and
3
<PAGE>
binding obligations of the Company enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent that the indemnification provisions contained
in the Registration Rights Agreement (as defined herein) may be limited by
applicable federal or state laws. The sale of the Series C Preferred Stock, and
the subsequent conversion of the Series C Preferred Stock into Common Stock, are
not and will not be subject to any preemptive rights that have not been properly
waived or complied with.
2.7 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
governmental authority is required on the part of the Company in connection with
the execution and delivery of this Agreement, the offer, issuance, sale and
delivery of the Series C Preferred Stock, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing, and except for filings required by federal and state securities laws.
2.8 Litigation. There is no action, suit or proceeding, or governmental
----------
inquiry or investigation, pending, or, to the best of the Company's knowledge,
threatened, which questions the validity of this Agreement or any Ancillary
Agreement or the right of the Company to enter into or perform this Agreement or
any Ancillary Agreement, or which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, nor is there any
litigation pending, or, to the best of the Company's knowledge, threatened
against the Company. The Company is not a party or subject to the provisions of
any order, writ, injunction, judgement or decree of any court or governmental
agency. The Company has not commenced nor does it currently intend to initiate
any action, suit, proceeding or investigation.
2.9 Employee Proprietary Information and Inventions Agreements. Each
----------------------------------------------------------
current employee, officer and consultant of the Company has executed an Employee
Proprietary Information and Inventions Agreement in substantially the form
attached hereto as Exhibit F. The Company is not aware that any of its
employees, officers or consultants have excluded works or inventions made prior
to employment or retention by the Company from application under such agreement
except as set forth on then Disclosure Schedule, or that any such persons are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
2.10 Acquisitions of the Company. The Company has not engaged in
---------------------------
substantive discussions or negotiations with a third party for the sale of all
or substantially all of the assets or stock of the Company or merger of the
Company with another entity, or the exchange of any consideration in connection
with any such sale or merger, in the six months preceding the date of this
Agreement.
2.11 Absence of Liabilities. The Company has no liabilities in excess
----------------------
of $25,000 and, to the best of its knowledge, has no material contingent
liabilities.
2.12 Financial Statements. Included in the Disclosure Schedule are an
--------------------
unaudited balance sheet and income statement at January 31, 1999, together with
related statements of operations, shareholders' equity and cash flow for the
fiscal year then ended
4
<PAGE>
(collectively, the "Financial Statements"). Such Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
except that the Financial Statements do not contain all footnotes required by
GAAP and are subject to normal year-end audit adjustments that in the aggregate
will not be material. The Financial Statements (a) are complete and correct in
all material respects, (b) are in accordance with the Company's books and
records, and (c) fairly present the financial condition and operating results of
the Company as of the dates, and for the periods indicated therein, subject to
normal year-end audit adjustments.
2.13 Taxes. The Company has filed all federal, state and foreign tax
-----
returns which are required to be filed by it on or prior to the Closing Date,
such returns are true and correct and all taxes shown thereon to be due have
been timely paid with exceptions not material to the Company. Income tax returns
of the Company have not been audited by the Internal Revenue Service or any
equivalent state agency or instrumentality, and no controversy with respect to
taxes of any type is pending or, to the best of the Company's knowledge,
threatened.
2.14 Property and Assets. The Company has good title to or a valid
-------------------
leasehold interest in all of its properties and assets, which comprise all of
the properties and assets necessary or useful for the conduct of its business
and none of such properties or assets is subject to any mortgage, pledge, lien,
security interest, lease, charge or encumbrance other than those the material
terms of which are described on the Disclosure Schedule, or as would not result
in a Material Adverse Effect. The Company is in compliance with all material
terms of each lease to which it is a party or is materially bound.
2.15 Intellectual Property. Set forth on the Disclosure Schedule is a
---------------------
true and complete list of all patents, patent applications, trademarks, service
marks, trademark and service mark applications, trade names, copyright
registrations and licenses presently owned or used by the Company, as well as
any agreement under which the Company has access to any material confidential
information used by the Company in its business (the "Intellectual Property
Rights"). To the best of its knowledge, the Company has sufficient title and
ownership of, or license rights to, all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted without any known conflict with or infringement of the rights of
others. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the business of the Company as proposed
to be conducted.
2.16 Material Contracts and Obligations. The Disclosure Schedule sets
----------------------------------
forth a list of all material agreements or commitments of any nature to which
the Company is a party or
5
<PAGE>
by which it is bound, including without limitation (i) each agreement which
requires future expenditures by the Company in excess of $25,000 or which might
result in payments to the Company in excess of $25,000, (ii) all employment and
consulting agreements (including any agreement entitling any employee to
continued employment or any severance), employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and arrangements,
and distributor and sales representative agreements, (iii) each agreement with
any shareholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1933, as amended (the
"Securities Act")), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity, (iv) any agreement relating to the Intellectual Property Rights, and (v)
any loans or indebtedness for borrowed money, including guarantees thereof. The
Company has delivered or made available to the Investors copies of such of the
foregoing agreements as the Investors have requested. To the knowledge of the
Company, all of such agreements and contracts are valid, binding and in full
force and effect, except where the failure to so comply would not have a
Material Adverse Effect on the Company's business.
2.17 Compliance. The Company is not in violation or default of any
-----------
provision of its Restated Articles or Bylaws, of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company which would have a
Material Adverse Effect. The execution, delivery and performance of this
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.18 Books and Records. The minute books of the Company contain
-----------------
complete and accurate records of all meetings and other corporate actions of its
shareholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
2.19 Disclosures. Neither this Agreement nor any exhibit hereto, nor
-----------
any report, certificate or instrument furnished to the Investors in connection
with the transactions contemplated by this Agreement, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
2.20 Changes. Since December 31, 1998, there have been no changes in
-------
the condition, financial or otherwise, net worth or results of operations of the
Company, other than changes occurring in the ordinary course of business which
changes have not, individually or in the aggregate, had a Material Adverse
Effect.
2.21 Year 2000 Compliance. The Company has undertaken an assessment of
--------------------
all of its IT Systems (as defined herein) and such systems are, or prior to
September 1, 1999 will
6
<PAGE>
be, Year 2000 Compliant (as defined herein). The Company is not aware of any
Material Third Party (as defined herein) or any material off-the-shelf software
that is used by the Company that will not be Year 2000 Compliant by September 1,
1999. For purposes of this Section 2.21: (a) "Year 2000 Compliant" shall mean
that the IT Systems will: (i) accurately process all date and time data
(including, but not limited to, calculating, comparing and sequencing)
including, without limiting the foregoing, between the years 1999 and earlier
and the years 2000 and later (in either direction, forward or backwards); (ii)
accurately process leap year calculations for date and time data; and (iii) when
used in combination with any other IT System, accurately process date and time
data if such other IT System properly exchanges date and time data with it; (b)
"IT Systems" shall mean any and all systems, facilities and devices by which
information (including data, text and images) is generated, stored, processed,
displayed, received or communicated, including computer hardware, computer
software and any machinery which incorporates a microchip; and (c) "Material
Third Party" shall mean any of the Company's information exchange partners,
suppliers, vendors and distributors that own any IT System which is material to
the Company's business.
2.22 Qualified Small Business Stock.
-------------------------------
(a) As of and immediately following the Closing, the Preferred Stock
will meet each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Internal Revenue Code of
1986, as amended (the "Code"), including without limitation the following: (i)
the Company will be a domestic C corporation, (ii) the Company will not have
made any purchases of its own stock described in Code Section 1202(c)(3)(B)
during the one-year period preceding the Closing, and (iii) the Company's (and
any predecessor's) aggregate gross assets, as defined by Code Section
1202(d)(2), at no time from the date of incorporation of the Company and through
the Closing have exceeded or will exceed $50 million, taking into account the
assets of any corporations required to be aggregated with the Company in
accordance with Code Section 1202(d)(3).
(b) As of the Closing, at least 80% (by value) of the assets of the
Company are used by it in the active conduct of one or more qualified trades or
businesses, as defined by Code Section 1202(e)(3), and the Company is an
eligible corporation, as defined by Code Section 1202(e)(4).
2.23 Business Plan.
-------------
The Company's business plan dated November 1998 (the "Business Plan"), as
furnished to the Investors, is the Company's current business plan and the
Company currently has no intention of making any material deviations from such
Business Plan.
3. Representations and Warranties of the Investors. Each Investor hereby
-----------------------------------------------
represents and warrants as to itself to the Company that:
3.1 Authorization. Such Investor has full power and authority to enter
-------------
into this Agreement and the Ancillary Agreements, and each such agreement
constitutes its valid and legally binding obligation, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to
7
<PAGE>
the extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with such
---------------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series C Preferred Stock to be received by such Investor and the Common
Stock issuable upon conversion of the Series C Preferred Stock (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation to such person or to
any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has received
-------------------------
all the information it considers necessary or appropriate for deciding whether
to purchase the Securities. Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investors to rely
thereon.
3.4 Investment Experience. Such Investor is an investor in securities
---------------------
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Securities. If other than an
individual, Investor also represents it has not been organized for the purpose
of acquiring the Securities.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that immediately
---------------------
following its purchase of the Securities hereunder, such Securities will be
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, such Investor
represents that it is familiar with Rule 144 as promulgated by the SEC under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 to the extent this Section is then applicable, and:
8
<PAGE>
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer (i) by an Investor that is a partnership to a partner or member of
such partnership or a retired partner or member of such partnership who retires
after the date hereof, or (ii) to the estate of any such partner or member or
retired partner or member or the transfer by gift, will or intestate succession
of any partner or member to his or her spouse or to the siblings, lineal
descendants or ancestors of such partner or member or his or her spouse, if any
transferee pursuant to (i) and (ii) above agrees in writing to be subject to
the terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH SECURITIES ACT.
(b) Any legends required by the laws of the State of California, or any
other applicable jurisdiction.
(c) Any legend required by the Ancillary Agreements.
3.9 Transfer of Rights. Subject to the limitations in Section 3.8
------------------
above, all rights and obligations of the Investors in this Agreement and the
Ancillary Agreements may be transferred to (i) a partner or retired partner of
any Investor that is a partnership, (ii) any immediate family member of an
Investor who is an individual, or an irrevocable trust for the benefit of an
individual Investor or his or her immediate family members, (iii) any
shareholder of any Investor which is a corporation, (iv) any member of any
Investor who is a limited liability company, or (v) any transferee who acquires
not less than Four Hundred Eighty-Five Thousand Seven Hundred Twenty (485,720)
shares of Series C Preferred Stock, provided the following conditions are met,
9
<PAGE>
(a) the Company is given written notice of such proposed transfer; and
(b) the transferee agrees in writing to be subject to the terms hereof
and in each of the Ancillary Agreements, including all representations and
warranties and covenants contained herein or therein to the same extent as if he
or she were an original Investor hereunder.
4. Conditions to the Investors' Obligations at the Closing. The obligations
-------------------------------------------------------
of each Investor under this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent in writing
thereto:
4.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Section 2 shall be true and correct in all material
respects on and as of the Closing with the same force and effect as though made
as of the Closing.
4.2 Covenants. The Company shall have performed and complied with all
---------
covenants and agreements required to be performed or complied with by it
hereunder at or prior to the Closing.
4.3 Compliance Certificate. An officer of the Company shall deliver to
----------------------
each Investor at the Closing a certificate stating that the conditions specified
in Sections 4.1 and 4.2 have been fulfilled.
4.4 Proceedings. All corporate and other proceedings taken or required
-----------
to be taken by the Company and in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Investors and their counsel.
4.5 Consents and Approvals. Except for filings pursuant to Regulation D
----------------------
under U.S. Federal securities laws and the "blue sky" laws having jurisdiction
over the sale of the Series C Preferred Stock, such filings to be made in a
timely fashion by the Company, all consents, approvals, authorizations, licenses
or orders of, registrations, qualifications, designations, declarations or
filings with, or notice to any governmental entity or any other person necessary
to be obtained, made or given in connection with the transactions contemplated
hereby shall have been duly obtained, made or given and shall be in full force
and effect, without the imposition upon the Company of any condition,
restriction or required undertaking.
4.6 Bylaws. A copy of the Company's Bylaws, as amended and in effect,
------
shall have been provided to the Investors prior to the Closing Date.
4.7 Board of Directors. Chip Ruth shall have been duly elected or
-----------------
appointed to the Board of Directors of the Company and to the audit and
compensation committees of the Board of Directors, effective at the Closing.
4.8 Certificate of Amendment to the Amended and Restated Articles of
-----------------------------------------------------------------
Incorporation. The Company shall have filed the Restated Articles (and any
- -------------
necessary amendments thereto), containing the rights, preferences and privileges
of the Series C Preferred Stock, in substantially the form attached hereto as
Exhibit A.
- ---------
10
<PAGE>
4.9 Registration Rights Agreement. The Company shall have entered into
-----------------------------
the Second Amended and Restated Registration Rights Agreement (the "Registration
Rights Agreement"), substantially in the form of Exhibit B hereto, with the
---------
Investors and the other parties named therein, and the Registration Rights
Agreement shall be in full force and effect as of the Closing.
4.10 Shareholders Agreement. The Company shall have entered into the
----------------------
Amended and Restated Shareholders Agreement (the "Shareholders Agreement"),
substantially in the form attached as Exhibit C hereto, with the Investors and
---------
the other parties named therein, and the Shareholders Agreement shall be in full
force and effect as of the Closing.
4.11 Voting Agreement. The Company and certain shareholders of the
----------------
Company listed therein shall have executed an Amended and Restated Voting
Agreement (the "Voting Agreement"), substantially in the form attached as
Exhibit D hereto, and such Voting Agreement shall be in full force and effect as
- ---------
of the Closing.
4.12 Opinion of Counsel. The Investors shall have received the opinion
------------------
of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the Closing
Date and addressed to the Investors, with respect to the matters set forth in
Exhibit E hereto and otherwise in form and substance reasonably satisfactory to
- ---------
the Investors and its counsel.
4.13 Intel Development Agreement. The Company and Intel Corporation
---------------------------
shall have executed and delivered the Intel Development Agreement.
5. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by that Investor:
5.1 Representations and Warranties. The representations and warranties
------------------------------
of each of the Investors contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have delivered, in
-------------------------
immediately available funds to an account designated by the Company, the
consideration specified in Schedule A.
----------
5.3 Qualifications. All authorizations, approvals, or permits, if any,
--------------
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
5.4 Intel Development Agreement. The Company and Intel Corporation shall
---------------------------
have executed and delivered the Intel Development Agreement.
6. Covenants of the Company. Until the earlier of (i) the sale of
------------------------
securities of the Company pursuant to a registration statement filed by the
Company under the Securities Act in connection with the underwritten offering of
its securities to the general public is consummated, (ii) the date on which the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the Securities Exchange Act of 1934, or (iii) a sale of all or
11
<PAGE>
substantially all of the Company's assets to, or merger or other reorganization
with, a public company (a "Transaction") whereby the holders of the outstanding
voting securities of the Company immediately prior to the Transaction fail to
hold equity securities representing a majority of the voting securities of the
Company or surviving entity immediately following the Transaction, the Company
shall comply with the following covenants:
6.1 Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to each Investor, so long as such Investor and its affiliates
beneficially owns at least fifty thousand (50,000) shares of Series C Preferred
Stock issued on the date hereof to such Investor, subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations:
(a) as soon as available, but in any event within fifteen (15) days
after the end of each month, monthly unaudited consolidated statements of income
and cash flows of the Company and its subsidiaries and monthly unaudited
consolidated balance sheets of the Company and its subsidiaries, and all such
statements shall be prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, except that they may not
contain full footnote disclosures and may be subject to normal year-end
adjustments for recurring accruals;
(b) as soon as available but in any event within one hundred twenty
(120) days after the end of each fiscal year, commencing with fiscal year 1998,
audited consolidated statements of income and cash flows of the Company and its
subsidiaries for the fiscal year, and audited consolidated balance sheets of the
Company and its subsidiaries as of the end of the fiscal year, all prepared in
accordance with GAAP, consistently applied; and
(c) not fewer than thirty days, but also not greater than seventy days
prior to the end of the Company's fiscal year, an annual budget and operating
plan prepared on a monthly basis for the Company and its subsidiaries for the
following fiscal year requested (displaying anticipated statements of income and
cash flows and balance sheets), approved by the Company's Board of Directors,
and promptly upon preparation thereof any material revisions of such annual or
other budgets and operating plans.
6.2 Inspection of Property. The Company shall permit each Investor and
----------------------
its representatives, so long as an Investor and its affiliates beneficially own
at least fifty thousand (50,000) shares of Series C Preferred Stock issued
pursuant to this Agreement, subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations, upon reasonable
notice and during normal business hours and at such other times as any such
person may reasonably request subject to Section 6.4 below, to (a) examine the
corporate and financial records of the Company and its subsidiaries and make
copies thereof or extracts therefrom and (b) discuss the affairs, finances and
accounts of any such entities with the directors, officers, key employees and
independent accountants of the Company and its subsidiaries.
6.3 Inspection and Visitation Rights.
--------------------------------
(a) Subject to Section 6.4 below, so long as an Investor and its
affiliates beneficially own at least fifty thousand (50,000) shares of Series C
Preferred Stock issued
12
<PAGE>
pursuant to this Agreement, the Company shall invite one (1) representative of
Venrock Associates and Venrock Associates II, L.P., one (1) representative of
Vertex Management, Inc., one (1) representative of Intel Corporation ("Intel"),
one (1) representative of Sprout Group and one (1) representative of Novus
Ventures, L.P. (which representative shall be Dan Tompkins) to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors. The rights
granted to Investors in this Section 6.3 shall terminate upon any initial public
offering of shares of Common Stock of the Company.
(b) The Company acknowledges that Intel will likely have, from time
to time, information that may be of interest to the Company ("Information")
regarding a wide variety of matters including, by way of example only, (1)
Intel's technologies, plans and services, and plans and strategies relating
thereto, (2) current and future investments Intel has made, may make, may
consider or may become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
technologies, products and services that may be competitive with the Company's,
and (3) developments with respect to the technologies, products and services,
and plans and strategies relating thereto, of other companies, including,
without limitation, companies that may be competitive with the Company. The
Company recognizes that a portion of such Information may be of interest to the
Company. Such Information may or may not be known by Intel's board observer. The
Company, as a material part of the consideration for this Agreement, agrees that
Intel and its board observer shall have no duty to disclose any Information to
the Company or permit the Company to participate in any projects or investments
based on any Information, or to otherwise take advantage of any opportunity that
may be of interest to the Company if it were aware of such Information, and
hereby waives, to the extent permitted by law, any claim based on the corporate
opportunity doctrine or otherwise that could limit Intel's ability to pursue
opportunities based on such Information or that would require Intel or its board
observer to disclose any such Information to the Company or offer any
opportunity relating thereto to the Company.
6.4 Limit on Information. Each Investor hereby agrees to hold in
--------------------
confidence and trust and not to misuse or disclose any confidential information
of the Company.
6.5 Option Grants. The Investors hereby acknowledge and agree that
-------------
the number of shares subject to the Company's stock option plans shall be
increased to reserve an additional Three Million Seven Hundred Fifty Thousand
(3,750,000) shares of Common Stock to the existing pool of shares reserved for
such stock option plans, effective upon the Closing.
6.6 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as the Securities are held by an Investor (or a transferee in whose hands
the Securities are eligible to qualify as Qualified Small Business Stock as
defined in Section 1202(c) of the Code, it will use its reasonable efforts to
cause the Securities to qualify as Qualified Small Business Stock and shall make
all filings required under Section 1202(D)(1)(c) of the Code.
6.7 Confidentiality and Non-Disclosure.
----------------------------------
(a) The terms and conditions of this Agreement and each of the
Ancillary Agreements (collectively, the "Financing Agreements"), including their
existence, shall be considered confidential information to Intel and the Company
and shall not be disclosed by any
13
<PAGE>
party hereto to any third party (other than to the existing shareholders of the
Company and members of the Company's Board of Directors) except in accordance
with the provisions set forth below.
(b) Within sixty (60) days of the Closing, the Company may issue a
press release disclosing that Intel has invested in the Company; provided that
the release does not disclose any of the terms and conditions of the Financing
Agreements (the "Financing Terms") and the final form of the press release is
approved in advance in writing by Intel. No other announcement regarding Intel's
investment in the Company in a press release, conference, advertisement,
announcement, professional or trade publication, mass marketing materials or
otherwise to the general public may be made without Intel's prior written
consent.
(c) Notwithstanding the foregoing, (i) any party may disclose any of
the Financing Terms, including Intel's investment in the Company, to its current
or bona fide prospective investors, employees, investment bankers, lenders,
accountants and attorneys; (ii) any party may disclose (other than in a press
release or other public announcement described in subsection (b)) solely the
fact that the Investors are investors in the Company to any third parties
without the requirement for the consent of any other party or nondisclosure
obligations; and (iii) Intel may disclose its investment in the Company and the
Financing Terms to third parties or to the public at its sole discretion and, if
it does so, the other parties hereto shall have the right to disclose to third
parties any such information disclosed in a press release or other public
announcement by Intel.
(d) In the event that any party is requested or becomes legally
compelled (including without limitation, pursuant to securities laws and
regulations) to disclose the existence of the Financing Agreements or any of the
Financing Terms hereof in contravention of the provisions of this Section 6.7,
such party (the "Disclosing Party") shall provide the other parties (the "Non-
Disclosing Parties") with prompt written notice of that fact so that the
appropriate party may seek (with the cooperation and reasonable efforts of the
other parties) a protective order, confidential treatment or other appropriate
remedy. In such event, the Disclosing Party shall furnish only that portion of
the information which is legally required and shall exercise reasonable efforts
to obtain reliable assurance that confidential treatment will be accorded such
information to the extent reasonably requested by any Non-Disclosing Party.
(e) The provisions of this Section 6.7 shall be in addition to, and
not in substitution for, the provisions of any separate nondisclosure agreement
executed by any of the parties hereto with respect to the transactions
contemplated hereby. Additional disclosures and exchange of confidential
information between the Company and Intel (including without limitation, any
exchanges of information with any Intel board observer) shall be governed by the
terms of the Corporate Non-Disclosure Agreement No. 5872674, dated April __,
1999, executed by the Company and Intel, and any Confidential Information
Transmittal Records ("CITR") provided in connection therewith. The CITR that
shall govern the exchanges of confidential information with any Intel board
observer shall be in the form attached hereto as Exhibit G.
----------
14
<PAGE>
7. Miscellaneous.
-------------
7.1 Survival of Representations, Warranties, Covenants an
-----------------------------------------------------
Agreements. The representations, warranties, covenants and agreements contained
- ----------
in this Agreement, any Ancillary Agreement or any exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
and supplied to the Investors by or on behalf of the Company in connection with
the transactions contemplated hereby shall survive the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
7.2 Notices. All notices, demands or other communications to be
-------
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid), mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid, or transmitted by facsimile or
electronic mail (with request for immediate confirmation of receipt in a manner
customary for communications of such type and with physical delivery of the
communication being made by one of the other means specified in this Section as
promptly as practicable thereafter). Such notices, demands and other
communications shall be addressed as follows:
If to the Company:
Fogdog, Inc.
3031 Tisch Way
100 Plaza East
San Jose, CA 95128
Attention: President
Telephone: (408) 261-6222
Telecopy : (408) 261-6226
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
David Makarechian, Esq.
Telephone: (650) 424-0160
Telecopy : (650) 496-2885
If to the Investors:
Venrock Associates and Venrock Associates II, L.P.
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Attention: Ray Rothrock
Telephone: (212) 649-5600
Telecopy: (212) 649-5788
15
<PAGE>
Vertex Management Inc.
3 Lagoon Drive, Suite 220
Redwood City, CA 94065
Attention: Chua Joo Hock
Telephone: (650) 591-9300
Telecopy: (650) 591-5926
JHWhitney & Co.
630 Fifth Avenue
New York, NY 10111
Attention: Michael C. Brooks
Telephone: (212) 332-2400
Telecopy: (212) 332-2422
With a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Bernard Kury, Esq.
Telephone: (212) 259-7400
Telecopy: (212) 259-7402
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: Portfolio Manager rn6-46
Telecopy: (408) 765-6038
with a copy to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel sc4-203
Telecopy: (408) 765-1859
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
7.3 Expenses. The Company shall pay the legal fees and expenses of
--------
Intel up to an aggregate of $5,000, and the reasonable legal fees and expenses
of Gunderson Dettmer, LLP (representing Sprout Group and Marquette Venture
Capital) up to an aggregate of $7,000 arising in connection with the negotiation
and execution of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby;
16
<PAGE>
provided however, that the Company shall not be responsible for any such fees or
expenses if the transactions contemplated by this Agreement and the Ancillary
Agreements are not consummated. Intel and Gunderson Dettmer, LLP have used their
best efforts to keep such legal fees and expenses to a minimum. The Company
shall pay all reasonable legal fees and expenses incurred by Investors in
connection with the review of amendments, waivers, consents or approvals
requested by the Company, with respect to this Agreement or the Ancillary
Agreements (except in connection with an initial public offering of shares of
the Company's Common Stock), up to an aggregate of $2,500, per such request by
the Company.
7.4 Dispute Resolution. The Company and Intel agree to negotiate in good
------------------
faith to resolve any dispute between them regarding this Agreement. If the
negotiations do not resolve the dispute to the reasonable satisfaction of both
the Company and Intel, then each party shall nominate one senior officer of the
rank of Vice President or higher as its representative. These representatives
shall, within thirty (30) days of a written request by either the Company or
Intel to call such a meeting, meet in person and alone (except for one assistant
for each party) and shall attempt in good faith to resolve the dispute. If the
disputes cannot be resolved by such senior managers in such meeting, the Company
and Intel agree that they shall, if requested in writing by either party, meet
within thirty (30) days after such written notification for one day with an
impartial mediator and consider dispute resolution alternatives other than
litigation. If an alternative method of dispute resolution is not agreed upon
within thirty (30) days after the one day mediation, either the Company or Intel
may begin litigation proceedings. This procedure shall be a prerequisite before
taking any additional action hereunder.
7.5 Entire Agreement; Waivers and Amendments. This Agreement (including
----------------------------------------
the exhibits and schedules hereto and the documents and instruments referred to
herein, including the Ancillary Agreements) contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior written or oral agreements and understandings with respect
thereto, including the Memorandum of Terms for Private Placement of Series C
Preferred Stock dated December 1, 1998, as amended. This Agreement may only be
amended or modified, and the terms hereof may only be waived, by a writing
signed by each party hereto or, in the case of a waiver, by the party entitled
to the benefit of the terms being waived.
7.6 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.7 Severability. In the event that any provision of this Agreement
------------
shall be declared invalid or unenforceable by a court of competent jurisdiction
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
17
<PAGE>
7.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of California, without giving
effect to the principles of conflicts of law thereof.
7.9 Strict Construction. This Agreement is the result of arms-length
-------------------
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
7.10 Captions. The paragraph and subsection headings in this Agreement
--------
are inserted for convenience of reference only, and shall not affect the
interpretation of this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original and both of which together shall be
considered one and the same agreement.
7.12 Broker's Fees. Each party hereto represents and warrants that no
-------------
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.12 being untrue.
[The Remainder of this Page is Intentionally Left Blank]
18
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Series
C Preferred Stock Purchase Agreement to be duly executed on its behalf as of the
date first written above.
FOGDOG, INC.
By: /s/ Timothy Harrington
----------------------
Name: Timothy Harrington
------------------
Title: President and Chief Executive Officer
-------------------------------------
1
<PAGE>
INVESTORS:
VENROCK ASSOCIATES
By: /s/ Kimberley Rummelsburg
-------------------------
Name: Kimberley Rummelsburg
Title: General Partner
VENROCK ASSOCIATES II, L.P.
By: /s/ Kimberley Rummelsberg
-------------------------
Name: Kimberley Rummelsburg
Title: General Partner
Fogdog, Inc. Series C Preferred Stock Purchase Agreement
1
<PAGE>
VERTEX TECHNOLOGY FUND, LTD.
By: /s/ Lee Kheng Nam
-----------------
By: Lee Kheng Nam
-------------
Its:
S
Fogdog, Inc. Series C Preferred Stock Purchase Agreement
SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III, L.L.C.
Its General Partner
By: /s/ Michael Brooks
------------------
Michael Brooks
Managing Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney Equity Partners III, L.L.C.
Its General Partner
By: /s/ Michael Brooks
------------------
Michael Brooks
Managing Member
<PAGE>
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: /s/ Warren Packard
------------------
By: Warren Packard
--------------
Its: Director
--------------
DRAPER FISHER PARTNERS IV, L.L.C.
By: /s/ Warren Packard
------------------
By: Warren Packard
--------------
Its: Director
--------------
<PAGE>
/s/ Reginald K.S. Ammons
------------------------
REGINALD K.S. AMMONS
/s/ Paul Lippe
--------------
PAUL LIPPE
/s/ Warren T. Lazarow
---------------------
WARREN T. LAZAROW
/s/ David A. Makarechian
------------------------
DAVID A. MAKARECHIAN
BROBECK PHLEGER & HARRISON, L.P.
By: /s/ Warren T. Lazarow
---------------------
Its: Partner
---------------------
<PAGE>
/s/ Steven Shevick
------------------
STEVEN SHEVICK
<PAGE>
INTEL CORPORATION
By: /s/ Arvind Sodhani
------------------
Print Name: Arvind Sodhani
--------------
Title: VP and Treasurer
--------------------
<PAGE>
DLJ CAPITAL CORP.
/s/ Alexander Rosen
-----------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
DLJ ESC II, L.P.
By: DLJ LBO Plans Management Corporation
Its: Manager
/s/ Alexander Rosen
------------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
SPROUT CAPITAL VIII, L.P.
By: DLJ Capital Corp.
Its: Managing General Partner
/s/ Alexander Rosen
------------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
SPROUT VENTURE CAPITAL, L.P.
By: DLJ Capital Corp.
Its: Managing General Partner
/s/ Alexander Rosen
------------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
<PAGE>
MARQUETTE VENTURE PARTNERS III, L.P.
By: MARQUETTE III, L.L.C.
Its: General Partner
[signature illegible]
-----------------------------------------
By: James B. Daverman or Lloyd D. Ruth
Its: Authorized Signatory
<PAGE>
/s/ Dwight E. Lee
-----------------------------------------
DWIGHT E. LEE
MV VENTURE PARTNERS II, SERIES 9
[signature illegible]
-----------------------------------------
By:
--------------------------------------
(Please print)
Its: General Partner
------------------------------------
GLYNN INVESTMENT CO. LLC
/s/ John W. Glynn, Jr.
----------------------------------------
By:
-----------------------------------------
(Please print)
Its: Owner
-------------------------------------
<PAGE>
SEMIR D. SIRAZI
/s/ Semir D. Sirazi
-------------------
2
<PAGE>
EXHIBIT 4.7
FOGDOG, INC.
____________________________
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
____________________________
September 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization, Issuance and Sale of Securities....................... 1
1.1 Authorization.................................................. 1
1.2 Issuance and Sale of Series D Preferred Stock.................. 1
1.3 Closing........................................................ 1
2. Representations and Warranties of the Company........................ 1
2.1 Organization, Good Standing and Qualification.................. 2
2.2 Capitalization................................................. 2
2.3 Subsidiaries, Etc.............................................. 3
2.4 Shareholder List and Agreements................................ 3
2.5 Issuance of Securities......................................... 3
2.6 Authority for Agreement........................................ 3
2.7 Governmental Consents.......................................... 3
2.8 Litigation..................................................... 4
2.9 Employee Proprietary Information and Inventions Agreements..... 4
2.10 Acquisitions of the Company.................................... 4
2.11 Absence of Liabilities......................................... 4
2.12 Financial Statements........................................... 4
2.13 Taxes.......................................................... 4
2.14 Property and Assets............................................ 5
2.15 Intellectual Property.......................................... 5
2.16 Material Contracts and Obligations............................. 5
2.17 Compliance..................................................... 6
2.18 Books and Records.............................................. 6
2.19 Disclosures.................................................... 6
2.20 Changes........................................................ 6
2.21 Year 2000 Compliance........................................... 6
2.22 Qualified Small Business Stock................................. 7
2.23 Business Plan.................................................. 7
3. Representations and Warranties of the Investors...................... 7
3.1 Authorization.................................................. 7
3.2 Purchase Entirely for Own Account.............................. 7
3.3 Disclosure of Information...................................... 8
3.4 Investment Experience.......................................... 8
3.5 Accredited Investor............................................ 8
3.6 Restricted Securities.......................................... 8
3.7 Further Limitations on Disposition............................. 8
3.8 Legends........................................................ 9
3.9 Transfer of Rights............................................. 9
4. Conditions to the Investors' Obligations at the Closing.............. 10
4.1 Representations and Warranties................................. 10
4.2 Covenants...................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.3 Compliance Certificate.............................................. 10
4.4 Proceedings......................................................... 10
4.5 Consents and Approvals.............................................. 10
4.6 Bylaws.............................................................. 10
4.7 Amended and Restated Articles of Incorporation..................... 10
4.8 Registration Rights Agreement....................................... 10
4.9 Shareholders Agreement.............................................. 10
4.10 Opinion of Counsel.................................................. 11
4.11 Voting Agreement.................................................... 11
5. Conditions of the Company's Obligations at Closing........................ 11
5.1 Representations and Warranties...................................... 11
5.2 Payment of Purchase Price........................................... 11
5.3 Qualifications...................................................... 11
6. Covenants of the Company.................................................. 11
6.1 Financial Statements and Other Information.......................... 11
6.2 Inspection of Property.............................................. 12
6.3 Limit on Information................................................ 12
6.4 Option Grants....................................................... 12
6.5 Qualified Small Business Stock...................................... 12
7. Miscellaneous............................................................. 12
7.1 Survival of Representations, Warranties, Covenants and Agreements... 12
7.2 Notices............................................................. 13
7.3 Entire Agreement; Waivers and Amendments............................ 13
7.4 Successors and Assigns.............................................. 14
7.5 Severability........................................................ 14
7.6 Governing Law....................................................... 14
7.7 Strict Construction................................................. 14
7.8 Captions............................................................ 14
7.9 Expenses............................................................ 14
7.10 Counterparts........................................................ 14
7.11 Broker's Fees....................................................... 14
</TABLE>
Exhibits
A Amended and Restated Articles of Incorporation
B Form of Third Amended and Restated Registration Rights Agreement
C Form of Third Amended and Restated Shareholders' Agreement
D Opinion of Counsel to the Company
E Form of Third Amended and Restated Voting Agreement
F Form of Employee Proprietary Information and Inventions Agreement
Schedules
- ---------
A Schedule of Investors
B Disclosure Schedule
ii
<PAGE>
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made
as of September 23, 1999 by and among Fogdog, Inc., a California corporation
(formerly known as Cedro Group, Inc.) (the "Company") and the investors listed
on the signature pages hereof (individually, an "Investor" and collectively, the
"Investors").
W I T N E S S E T H:
WHEREAS, the Company wishes to sell to the Investors, and the
Investors wish to purchase from the Company, shares of the Company's Series D
Preferred Stock, no par value per share (the "Series D Preferred Stock") subject
to the terms and in the manner further set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the Company, the parties hereto hereby agree as follows:
1. Authorization, Issuance and Sale of Securities.
----------------------------------------------
1.1 Authorization. The Company has authorized the issuance and
-------------
sale pursuant to the terms hereof of an aggregate of Five Million Five Hundred
Thousand (5,500,000) shares of Series D Preferred Stock, at a purchase price of
$2.89 per share. The rights, preferences and privileges of the Series D
Preferred Stock shall be as set forth in the Amended and Restated Articles of
Incorporation (the "Restated Articles") in substantially the form of Exhibit A
---------
attached hereto.
1.2 Issuance and Sale of Series D Preferred Stock. Subject to
---------------------------------------------
the terms and conditions hereof, at the Closing (as defined below) the Company
will issue and sell to the Investors and the Investors will purchase from the
Company the number of shares of Series D Preferred Stock set forth opposite each
Investor's name on Schedule A.
----------
1.3 Closing. The closing of the transactions contemplated
-------
herein (the "Closing") shall take place at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California at
3:00 p.m. local time on September 23, 1999, or at such other time and place as
may be mutually agreed upon by the Company and the Investors. The date on which
the Closing occurs is referred to herein as the "Closing Date." At the Closing,
the Company shall deliver to the Investors participating therein certificates
evidencing the number of shares of Series D Preferred Stock set forth on
Schedule A opposite such Investor's name against payment of the purchase price
- ----------
set forth on Schedule A by check or wire transfer of immediately available
----------
funds to an account designated by the Company in a written notice delivered to
such Investors prior to the Closing Date.
2. Representations and Warranties of the Company. Except as set
---------------------------------------------
forth in the Disclosure Schedule attached hereto as Schedule B, prepared by the
----------
Company, which shall be
<PAGE>
representations and warranties of the Company, the Company hereby represents and
warrants to the Investors as follows:
2.1 Organization, Good Standing and Qualification. The Company
---------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has full corporate power and authority to
conduct its business as presently conducted and as proposed to be conducted by
it and to enter into and perform this Agreement and each of the Ancillary
Agreements (as defined in Section 2.6 below) and to carry out the transactions
contemplated by this Agreement and each of the Ancillary Agreements. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties (a "Material Adverse Effect"). The Company
has furnished or made available to the Investors true and complete copies of the
Restated Articles and the Bylaws of the Company, each as amended to date and
currently in effect.
2.2 Capitalization. Upon the filing of the Restated Articles
--------------
with the State of California, the authorized capital stock of the Company will
consist of (i) Seventy-Two Million (72,000,000) shares of Common Stock, no par
value per share, (the "Common Stock"), of which Eight Million Seven Hundred
Forty-Two Thousand Two Hundred Ninety-Two (8,742,292) shares are issued and
outstanding and Eight Million One Hundred Thousand Two Hundred Seventy-Four
(8,100,274) shares are reserved for issuance upon exercise of options under the
Company's Amended and Restated 1996 Stock Option Plan, as amended and in effect
from time to time (the "Option Plan"), of which options for the purchase of Six
Million Seven Hundred Twenty-Six Thousand Ninety-Three (6,726,093) shares have
been issued, and (ii) Forty-One Million Seven Hundred Ninety-Six Thousand Two
Hundred Eighty-Two (41,796,282) shares of Preferred Stock, which consist of (a)
Two Million Eight Hundred Thirteen Thousand Forty-Six (2,813,046) shares of
Series A Preferred Stock, no par value per share (the "Series A Preferred
Stock"), of which Two Million Six Hundred Seventy-Nine Thousand Two Hundred
Sixty-Eight (2,679,268) shares are issued and outstanding, (b) Nine Million Six
Hundred Seventy-Eight Thousand Seven Hundred (9,678,700) shares of Series B
Preferred Stock, no par value per share (the "Series B Preferred Stock"), all of
which are issued and outstanding, (c) Twenty-Three Million Eight Hundred Four
Thousand Five Hundred Thirty-Six (23,804,536) of Series C Preferred Stock, no
par value per shares (the "Series C Preferred Stock"), of which Seventeen
Million Four Hundred Eighty-Five Thousand Nine Hundred Fourteen (17,485,914)
shares are issued and outstanding and (d) Five Million Five Hundred Thousand
(5,500,000) shares of Series D Preferred Stock, none of which are outstanding
and up to all of which may be issued pursuant to this Agreement. All of the
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, and were issued
in compliance with all applicable securities laws. Except as contemplated by
this Agreement and except for warrants for the purchase of 147,144 shares of
Common Stock, 133,779 shares of Series A Preferred Stock and 6,171,524 shares of
Series C Preferred Stock (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) the
Company has no obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security or other such right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company, and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
2
<PAGE>
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof. The percentage ownership of the Company,
on a fully diluted basis, represented by the Series D Preferred Stock purchased
hereunder shall be, for each Investor, as set forth opposite such Investor's
name on the Schedule of Investors attached hereto as Schedule A.
----------
2.3 Subsidiaries, Etc. Except as listed on the Disclosure
-----------------
Schedule, the Company has no subsidiaries and does not own or control, directly
or indirectly, any shares of capital stock of any other corporation or any
interest in any partnership, joint venture or other non-corporate business
enterprise.
2.4 Shareholder List and Agreements. The Disclosure Schedule
-------------------------------
sets forth a true and complete list of the shareholders of the Company, showing
the number of shares of capital stock or other securities of the Company held by
each shareholder as of the date of this Agreement and the Closing Date. The
Company is not a party or subject to any agreement or understanding, and, to the
best of the Company's knowledge, there is no agreement or understanding between
any persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any security or by a director of the Company,
except as referred to herein.
2.5 Issuance of Securities. The issuance, sale and delivery of
----------------------
the Series D Preferred Stock in accordance with this Agreement, and the issuance
and delivery of the shares of Common Stock issuable upon conversion of the
Series D Preferred Stock, have been, or will be on or prior to the Closing, duly
authorized by all necessary corporate action on the part of the Company, and all
such shares of Series D Preferred Stock and Common Stock have been duly reserved
for issuance. The Series D Preferred Stock when so issued, sold and delivered
against payment therefor in accordance with the provisions of this Agreement,
and the shares of Common Stock issuable upon conversion of the Series D
Preferred Stock, when issued upon such conversion in accordance with the Second
Restated Articles, will be duly and validly issued, fully paid and non-
assessable.
2.6 Authority for Agreement. The execution, delivery and
-----------------------
performance by the Company of this Agreement and all other agreements required
to be executed by the Company on or prior to the Closing pursuant to Section 4
of this Agreement (the "Ancillary Agreements"), and the consummation by the
Company of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement and the Ancillary
Agreements have been duly executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable in accordance with
their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent that the indemnification
provisions contained in the Registration Rights Agreement (as defined herein)
may be limited by applicable federal or state laws. The sale of the Series D
Preferred Stock, and the subsequent conversion of the Series D Preferred Stock
into Common Stock, are not and will not be subject to any preemptive rights that
have not been properly waived or complied with.
2.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority
3
<PAGE>
is required on the part of the Company in connection with the execution and
delivery of this Agreement, the offer, issuance, sale and delivery of the Series
D Preferred Stock, or the other transactions to be consummated at the Closing,
as contemplated by this Agreement, except such filings as shall have been made
prior to and shall be effective on and as of the Closing, and except for filings
required by federal and state securities laws.
2.8 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, threatened, which questions the validity of this Agreement or any
Ancillary Agreement or the right of the Company to enter into or perform this
Agreement or any Ancillary Agreement, or which could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect, nor is
there any litigation pending, or, to the best of the Company's knowledge,
threatened against the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgement or decree of any court or
governmental agency. The Company has not commenced nor does it currently intend
to initiate any action, suit, proceeding or investigation.
2.9 Employee Proprietary Information and Inventions Agreements.
-----------------------------------------------------------
Each current employee, officer and consultant of the Company has executed an
Employee Proprietary Information and Inventions Agreement in substantially the
form attached hereto as Exhibit F. The Company is not aware that any of its
---------
employees, officers or consultants have excluded works or inventions made prior
to employment or retention by the Company from application under such agreement
except as set forth on then Disclosure Schedule, or that any such persons are in
violation thereof, and the Company will use its best efforts to prevent any such
violation.
2.10 Acquisitions of the Company. The Company has not engaged
---------------------------
in substantive discussions or negotiations with a third party for the sale of
all or substantially all of the assets or stock of the Company or merger of the
Company with another entity, or the exchange of any consideration in connection
with any such sale or merger, in the six months preceding the date of this
Agreement.
2.11 Absence of Liabilities. The Company has no liabilities in
----------------------
excess of $50,000 and, to the best of its knowledge, has no material contingent
liabilities.
2.12 Financial Statements. Included in the Disclosure Schedule
--------------------
are an unaudited balance sheet and income statement at June 30, 1999, together
with related statements of operations, shareholders' equity and cash flow for
the fiscal year then ended (collectively, the "Financial Statements"). Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") except that the Financial Statements do not
contain all footnotes required by GAAP and are subject to normal year-end audit
adjustments that in the aggregate will not be material. The Financial
Statements (a) are complete and correct in all material respects, (b) are in
accordance with the Company's books and records, and (c) fairly present the
financial condition and operating results of the Company as of the dates, and
for the periods indicated therein, subject to normal year-end audit adjustments.
2.13 Taxes. The Company has filed all federal, state and
-----
foreign tax returns which are required to be filed by it on or prior to the
Closing Date, such returns are true and correct and all taxes shown thereon to
be due have been timely paid with exceptions not material to the Company. Income
tax returns of the Company have not been audited by the Internal
4
<PAGE>
Revenue Service or any equivalent state agency or instrumentality, and no
controversy with respect to taxes of any type is pending or, to the best of the
Company's knowledge, threatened.
2.14 Property and Assets. The Company has good title to or a
-------------------
valid leasehold interest in all of its properties and assets, which comprise all
of the properties and assets necessary or useful for the conduct of its business
and none of such properties or assets is subject to any mortgage, pledge, lien,
security interest, lease, charge or encumbrance other than those the material
terms of which are described on the Disclosure Schedule, or as would not result
in a Material Adverse Effect. The Company is in compliance with all material
terms of each lease to which it is a party or is materially bound.
2.15 Intellectual Property. Set forth on the Disclosure
---------------------
Schedule is a true and complete list of all patents, patent applications,
trademarks, service marks, trademark and service mark applications, trade names,
copyright registrations and licenses presently owned or used by the Company, as
well as any agreement under which the Company has access to any material
confidential information used by the Company in its business (the "Intellectual
Property Rights"). To the best of its knowledge, the Company has sufficient
title and ownership of, or license rights to, all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted without any known conflict with or infringement of the rights of
others. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the business of the Company as proposed
to be conducted.
2.16 Material Contracts and Obligations. The Disclosure
----------------------------------
Schedule sets forth a list of all material agreements or commitments of any
nature to which the Company is a party or by which it is bound, including
without limitation (i) each agreement which requires future expenditures by the
Company in excess of $50,000 or which might result in payments to the Company in
excess of $50,000, (ii) all employment and consulting agreements (including any
agreement entitling any employee to continued employment or any severance),
employee benefit, bonus, pension, profit-sharing, stock option, stock purchase
and similar plans and arrangements, and distributor and sales representative
agreements, (iii) each agreement with any shareholder, officer or director of
the Company, or any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the Securities Act of
1933, as amended (the "Securities Act")), including without limitation any
agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such person or entity, (iv) any agreement relating to the Intellectual
Property Rights, and (v) any loans or indebtedness for borrowed money, including
5
<PAGE>
guarantees thereof. The Company has delivered or made available to the
Investors copies of such of the foregoing agreements as the Investors have
requested. To the knowledge of the Company, all of such agreements and contracts
are valid, binding and in full force and effect, except where the failure to so
comply would not have a Material Adverse Effect on the Company's business.
2.17 Compliance. The Company is not in violation or default of
----------
any provision of its Restated Articles or Bylaws, of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to the best of its knowledge, of any provision of any federal or state
statute, rule or regulation applicable to the Company which would have a
Material Adverse Effect. The execution, delivery and performance of this
Agreement and the Ancillary Agreements, and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event that results in the creation of any lien,
charge or encumbrance upon any assets of the Company or the suspension,
revocation, impairment, forfeiture, or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.18 Books and Records. The minute books of the Company
-----------------
contain complete and accurate records of all meetings and other corporate
actions of its shareholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
2.19 Disclosures. Neither this Agreement nor any exhibit
-----------
hereto, nor any report, certificate or instrument furnished to the Investors in
connection with the transactions contemplated by this Agreement, when read
together, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
2.20 Changes. Since June 30, 1999, there have been no changes
-------
in the condition, financial or otherwise, net worth or results of operations of
the Company, other than changes occurring in the ordinary course of business
which changes have not, individually or in the aggregate, had a Material Adverse
Effect.
2.21 Year 2000 Compliance. The Company has undertaken an
--------------------
assessment of all of its IT Systems (as defined herein) and such systems are, or
prior to December 1, 1999 will be, Year 2000 Compliant (as defined herein). The
Company is not aware of any Material Third Party (as defined herein) or any
material off-the-shelf software that is used by the Company that will not be
Year 2000 Compliant by December 1, 1999. For purposes of this Section 2.21: (a)
"Year 2000 Compliant" shall mean that the IT Systems will: (i) accurately
process all date and time data (including, but not limited to, calculating,
comparing and sequencing) including, without limiting the foregoing, between the
years 1999 and earlier and the years 2000 and later (in either direction,
forward or backwards); (ii) accurately process leap year calculations for date
and time data; and (iii) when used in combination with any other IT System,
accurately process date and time data if such other IT System properly exchanges
date and time data with it; (b) "IT Systems" shall mean any and all systems,
facilities and devices by which information (including data, text and images) is
generated, stored, processed, displayed, received or communicated, including
computer hardware, computer software and any machinery which incorporates a
6
<PAGE>
microchip; and (c) "Material Third Party" shall mean any of the Company's
information exchange partners, suppliers, vendors and distributors that own any
IT System which is material to the Company's business.
2.22 Qualified Small Business Stock.
------------------------------
(a) As of and immediately following the Closing, the Preferred
Stock will meet each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Internal Revenue Code of
1986, as amended (the "Code"), including without limitation the following: (i)
the Company will be a domestic C corporation, (ii) the Company will not have
made any purchases of its own stock described in Code Section 1202(c)(3)(B)
during the one-year period preceding the Closing, and (iii) the Company's (and
any predecessor's) aggregate gross assets, as defined by Code Section
1202(d)(2), at no time from the date of incorporation of the Company and through
the Closing have exceeded or will exceed $50 million, taking into account the
assets of any corporations required to be aggregated with the Company in
accordance with Code Section 1202(d)(3).
(b) As of the Closing, at least 80% (by value) of the assets of
the Company are used by it in the active conduct of one or more qualified trades
or businesses, as defined by Code Section 1202(e)(3), and the Company is an
eligible corporation, as defined by Code Section 1202(e)(4).
2.23 Business Plan. The Company's business plan dated November
-------------
1998 (the "Business Plan"), as furnished to the Investors, is the Company's
current business plan and the Company currently has no intention of making any
material deviations from such Business Plan.
3. Representations and Warranties of the Investors. Each Investor
-----------------------------------------------
hereby represents and warrants as to itself to the Company that:
3.1 Authorization. Such Investor has full power and authority
-------------
to enter into this Agreement and the Ancillary Agreements, and each such
agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
---------------------------------
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series D Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion of the Series D Preferred
Stock (collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking,
7
<PAGE>
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Securities. Such Investor further represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Securities and the
business, properties, prospects and financial condition of the Company. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Investors to
rely thereon.
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
If other than an individual, Investor also represents it has not been organized
for the purpose of acquiring the Securities.
3.5 Accredited Investor. Such Investor is an "accredited
-------------------
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that
---------------------
immediately following its purchase of the Securities hereunder, such Securities
will be characterized as "restricted securities" under the federal securities
laws inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, such Investor
represents that it is familiar with Rule 144 as promulgated by the SEC under the
Securities Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 to the extent this Section is then applicable, and:
(a) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
8
<PAGE>
(c) Notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer (i) by an Investor that is a partnership to a partner or member
of such partnership or a retired partner or member of such partnership who
retires after the date hereof, or (ii) to the estate of any such partner or
member or retired partner or member or the transfer by gift, will or intestate
succession of any partner or member to his or her spouse or to the siblings,
lineal descendants or ancestors of such partner or member or his or her spouse,
if any transferee pursuant to (i) and (ii) above agrees in writing to be subject
to the terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 Legends. It is understood that the certificates evidencing
-------
the Securities may bear one or all of the following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH SECURITIES ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH SECURITIES ACT.
(b) Any legends required by the laws of the State of California,
or any other applicable jurisdiction.
(c) Any legend required by the Ancillary Agreements.
3.9 Transfer of Rights. Subject to the limitations in Section
------------------
3.8 above, all rights and obligations of the Investors in this Agreement and the
Ancillary Agreements may be transferred to (i) a partner or retired partner of
any Investor that is a partnership, (ii) any immediate family member of an
Investor who is an individual, or an irrevocable trust for the benefit of an
individual Investor or his or her immediate family members, (iii) any
shareholder of any Investor which is a corporation, (iv) any member of any
Investor who is a limited liability company, or (v) any transferee who acquires
not less than Five Hundred Thousand (500,000) shares of Series D Preferred
Stock, provided the following conditions are met,
(a) the Company is given written notice of such proposed
transfer; and
(b) the transferee agrees in writing to be subject to the terms
hereof and in each of the Ancillary Agreements, including all representations
and warranties and covenants contained herein or therein to the same extent as
if he or she were an original Investor hereunder.
9
<PAGE>
4. Conditions to the Investors' Obligations at the Closing. The
-------------------------------------------------------
obligations of each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective against any Investor who does not consent in
writing thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same force and effect as
though made as of the Closing.
4.2 Covenants. The Company shall have performed and complied
---------
with all covenants and agreements required to be performed or complied with by
it hereunder at or prior to the Closing.
4.3 Compliance Certificate. An officer of the Company shall
----------------------
deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Proceedings. All corporate and other proceedings taken or
-----------
required to be taken by the Company and in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Investors and their counsel.
4.5 Consents and Approvals. Except for filings pursuant to
----------------------
Regulation D under U.S. Federal securities laws and the "blue sky" laws having
jurisdiction over the sale of the Series D Preferred Stock, such filings to be
made in a timely fashion by the Company, all consents, approvals,
authorizations, licenses or orders of, registrations, qualifications,
designations, declarations or filings with, or notice to any governmental entity
or any other person necessary to be obtained, made or given in connection with
the transactions contemplated hereby shall have been duly obtained, made or
given and shall be in full force and effect, without the imposition upon the
Company of any condition, restriction or required undertaking.
4.6 Bylaws. A copy of the Company's Bylaws, as amended and in
------
effect, shall have been provided to the Investors prior to the Closing Date.
4.7 Amended and Restated Articles of Incorporation. The
-----------------------------------------------
Company shall have filed the Restated Articles, containing the rights,
preferences and privileges of the Series D Preferred Stock, in substantially the
form attached hereto as Exhibit A.
---------
4.8 Registration Rights Agreement. The Company shall have
-----------------------------
entered into the Third Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement"), substantially in the form of Exhibit B hereto,
---------
with the Investors and the other parties named therein, and the Registration
Rights Agreement shall be in full force and effect as of the Closing.
4.9 Shareholders Agreement. The Company shall have entered into
----------------------
the Third Amended and Restated Shareholders' Agreement (the "Shareholders
Agreement"), substantially in the form attached as Exhibit C hereto, with the
---------
Investors and the other parties named therein, and the Shareholders Agreement
shall be in full force and effect as of the Closing.
10
<PAGE>
4.10 Opinion of Counsel. The Investors shall have received the
------------------
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the
Closing Date and addressed to the Investors, with respect to the matters set
forth in Exhibit D hereto and otherwise in form and substance reasonably
---------
satisfactory to the Investors and its counsel.
4.11 Voting Agreement. The Company shall have entered into the
----------------
Third Amended and Restated Voting Agreement (the "Voting Agreement"),
substantially in the form attached as Exhibit E hereto, with the Investors and
the other parties named therein, and the Voting Agreement shall be in full force
and effect as of the Closing.
5. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each of the Investors contained in Section 3 shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 Payment of Purchase Price. Each Investor shall have
-------------------------
delivered, in immediately available funds to an account designated by the
Company, the consideration specified in Schedule A.
----------
5.3 Qualifications. All authorizations, approvals, or permits,
--------------
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. Covenants of the Company. Until the earlier of (i) the sale of
------------------------
securities of the Company pursuant to a registration statement filed by the
Company under the Securities Act in connection with the underwritten offering of
its securities to the general public is consummated, (ii) the date on which the
Company first becomes subject to the periodic reporting requirements of Sections
12(g) or 15(d) of the Securities Exchange Act of 1934, or (iii) a sale of all or
substantially all of the Company's assets to, or merger or other reorganization
with, a public company (a "Transaction") whereby the holders of the outstanding
voting securities of the Company immediately prior to the Transaction fail to
hold equity securities representing a majority of the voting securities of the
Company or surviving entity immediately following the Transaction, the Company
shall comply with the following covenants:
6.1 Financial Statements and Other Information. The Company
------------------------------------------
shall deliver to each Investor, so long as such Investor and its affiliates
beneficially owns at least fifty thousand (50,000) shares of Series D Preferred
Stock issued on the date hereof to such Investor, subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations:
(a) as soon as available, but in any event within fifteen (15)
days after the end of each month, monthly unaudited consolidated statements of
income and cash flows of the Company and its subsidiaries and monthly unaudited
consolidated balance sheets of the Company and its subsidiaries, and all such
statements shall be prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), consistently applied, except that they may
11
<PAGE>
not contain full footnote disclosures and may be subject to normal year-end
adjustments for recurring accruals;
(b) as soon as available but in any event within one hundred
twenty (120) days after the end of each fiscal year, commencing with fiscal year
1999, audited consolidated statements of income and cash flows of the Company
and its subsidiaries for the fiscal year, and audited consolidated balance
sheets of the Company and its subsidiaries as of the end of the fiscal year, all
prepared in accordance with GAAP, consistently applied; and
(c) not fewer than thirty days, but also not greater than
seventy days prior to the end of the Company's fiscal year, an annual budget and
operating plan prepared on a monthly basis for the Company and its subsidiaries
for the following fiscal year requested (displaying anticipated statements of
income and cash flows and balance sheets), approved by the Company's Board of
Directors, and promptly upon preparation thereof any material revisions of such
annual or other budgets and operating plans.
6.2 Inspection of Property. The Company shall permit each
----------------------
Investor and its representatives, so long as an Investor and its affiliates
beneficially own at least fifty thousand (50,000) shares of Series D Preferred
Stock issued pursuant to this Agreement, subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations, upon
reasonable notice and during normal business hours and at such other times as
any such person may reasonably request subject to Section 6.4 below, to (a)
examine the corporate and financial records of the Company and its subsidiaries
and make copies thereof or extracts therefrom and (b) discuss the affairs,
finances and accounts of any such entities with the directors, officers, key
employees and independent accountants of the Company and its subsidiaries.
6.3 Limit on Information. Each Investor hereby agrees to hold
--------------------
in confidence and trust and not to misuse or disclose any confidential
information of the Company.
6.4 Option Grants. The Investors hereby acknowledge and agree
-------------
that the number of shares subject to the Company's stock option plans shall be
increased to reserve an additional two million (2,000,000) shares of Common
Stock to the existing pool of shares reserved for such stock option plans,
effective upon the Closing.
6.5 Qualified Small Business Stock. The Company covenants that
------------------------------
so long as the Securities are held by an Investor (or a transferee in whose
hands the Securities are eligible to qualify as Qualified Small Business Stock
as defined in Section 1202(c) of the Code, it will use its reasonable efforts to
cause the Securities to qualify as Qualified Small Business Stock and shall make
all filings required under Section 1202(D)(1)(c) of the Code.
7. Miscellaneous.
-------------
7.1 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements. The representations, warranties, covenants and agreements contained
- ----------
in this Agreement, any Ancillary Agreement or any exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
and supplied to the Investors by or on behalf of the Company
12
<PAGE>
in connection with the transactions contemplated hereby shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
7.2 Notices. All notices, demands or other communications to
-------
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid), mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid, or transmitted by
facsimile or electronic mail (with request for immediate confirmation of receipt
in a manner customary for communications of such type and with physical delivery
of the communication being made by one of the other means specified in this
Section as promptly as practicable thereafter). Such notices, demands and other
communications shall be addressed as follows:
If to the Company:
Fogdog, Inc.
500 Broadway
Redwood City, CA 94063
Attention: President
Telephone: (650) 980-2565
Telecopy : (650) 980-2600
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
David Makarechian, Esq.
Telephone: (650) 424-0160
Telecopy : (650) 496-2885
If to the Investors:
Worldview Technology Partners
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Attention: Chief Financial Officer
Telephone: (650) 322-3800
Telecopy: (650) 322-3880
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party
(provided that notice of a change of address shall be effective only upon
receipt thereof).
7.3 Entire Agreement; Waivers and Amendments. This Agreement
----------------------------------------
(including the exhibits and schedules hereto and the documents and instruments
referred to herein,
13
<PAGE>
including the Ancillary Agreements) contains the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior written or oral agreements and understandings with respect
thereto, including the Memorandum of Terms for Private Placement of Series D
Preferred Stock, as amended. This Agreement may only be amended or modified, and
the terms hereof may only be waived, by a writing signed by each party hereto
or, in the case of a waiver, by the party entitled to the benefit of the terms
being waived.
7.4 Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.5 Severability. In the event that any provision of this
------------
Agreement shall be declared invalid or unenforceable by a court of competent
jurisdiction in any jurisdiction, such provision shall, as to such jurisdiction,
be ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
7.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of California,
without giving effect to the principles of conflicts of law thereof.
7.7 Strict Construction. This Agreement is the result of arms-
-------------------
length negotiations between the parties hereto and has been prepared jointly by
the parties. In applying and interpreting the provisions of this Agreement,
there shall be no presumption that the Agreement was prepared by any one party
or that the Agreement shall be construed in favor of or against any one party.
7.8 Captions. The paragraph and subsection headings in this
--------
Agreement are inserted for convenience of reference only, and shall not affect
the interpretation of this Agreement.
7.9 Expenses. The Company shall pay the legal fees and
--------
expenses of the Investors up to an aggregate of $10,000 arising in connection
with the negotiation and execution of this Agreement and the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby; provided however, that the Company shall not be responsible for any
such fees or expenses if the transactions contemplated by this Agreement and the
Ancillary Agreements are not consummated. The Investors have used their best
efforts to keep such legal fees and expenses to a minimum.
7.10 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and both of which
together shall be considered one and the same agreement.
7.11 Broker's Fees. Each party hereto represents and warrants
-------------
that no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party
14
<PAGE>
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 7.11 being untrue.
[The Remainder of this Page is Intentionally Left Blank]
15
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Series
D Preferred Stock Purchase Agreement to be duly executed on its behalf as of the
date first written above.
FOGDOG, INC.
By: /s/ Timothy Harrington
-------------------------------
Name: Timothy Harrington
-----------------------------
Title: Chief Executive Officer
----------------------------
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
INVESTORS
HIKARI TSUSHIN, INC.
By: /s/ Masahide Saito
------------------------------------
Masahide Saito, Director
AMAN VENTURES L.L.C.
By: /s/ William J. Bell
------------------------------------
William J. Bell
General Partner
BOSTON MILLENNIA PARTNERS, L.P.
By: /s/ A. Dana Callow Jr.
------------------------------------
A. Dana Callow, Jr.
Managing General Partner
LYCOS VENTURES, L.P.
By: Lycos Triangle Partners, LLC, its
general partner
[signature illegible]
-----------------------------------------
By:______________________________________
Its:_____________________________________
LYCOS VENTURES CO-INVESTMENT FUND, L.P.
By: Lycos Triangle Partners, LLC, its
general partner
[signature illegible]
-----------------------------------------
By:______________________________________
Its:_____________________________________
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
WORLDVIEW TECHNOLOGY PARTNERS II, L.P.
By: Worldview Capital II, L.P., its
General Partner
By: Worldview Equity I, L.L.C., its
General Partner
/s/ Michael Orsak
-----------------------------------------
By: Michael Orsak - Member
WORLDVIEW TECHNOLOGY INTERNATIONAL II,
L.P.
By: Worldview Capital II, L.P., its
General Partner
By: Worldview Equity I, L.L.C., its
General Partner
/s/ Michael Orsak
-----------------------------------------
By: Michael Orsak - Member
WORLDVIEW STRATEGIC PARTNERS II, L.P.
By: Worldview Capital II, L.P., its
General Partner
By: Worldview Equity I, L.L.C., its
General Partner
/s/ Michael Orsak
-----------------------------------------
By: Michael Orsak - Member
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
VENROCK ASSOCIATES
By: /s/ Kimberley Rummelsburg
--------------------------------------
Name: Kimberley Rummelsburg
Title: General Partner
VENROCK ASSOCIATES II, L.P.
By: /s/ Kimberley Rummelsburg
--------------------------------------
Name: Kimberley Rummelsburg
Title: General Partner
VERTEX TECHNOLOGY FUND (II), LTD.
/s/ Lee Kheng Nam
-----------------------------------------
By: Lee Kheng Nam
------------------------------------
Its: President
------------------------------------
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III,
L.L.C. Its General Partner
By: /s/ Michael Brooks
------------------------------------
Michael Brooks
Managing Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney Equity Partners III,
L.L.C. Its General Partner
By: /s/ Michael Brooks
------------------------------------
Michael Brooks
Managing Member
DRAPER FISHER ASSOCIATES FUND IV, L.P.
[signature illegible]
-----------------------------------------
By:______________________________________
Its:_____________________________________
DRAPER FISHER PARTNERS IV, L.L.C.
By: [signature illegible]
------------------------------------
By:______________________________________
Its:_____________________________________
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
DLJ CAPITAL CORP.
/s/ Alexander Rosen
-----------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
DLJ ESC II, L.P.
By: DLJ LBO Plans Management Corporation
Its: Manager
/s/ Alexander Rosen
-----------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
SPROUT CAPITAL VIII, L.P.
By: DLJ Capital Corp.
Its: Managing General Partner
/s/ Alexander Rosen
-----------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
SPROUT VENTURE CAPITAL, L.P.
By: DLJ Capital Corp.
Its: Managing General Partner
/s/ Alexander Rosen
-----------------------------------------
By: Alexander Rosen
Its: Attorney In Fact
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
MARQUETTE VENTURE PARTNERS III, L.P.
By: MARQUETTE III, L.L.C.
Its: General Partner
[signature illegible]
-----------------------------------------
By: James B. Daverman or Lloyd D. Ruth
Its: Authorized Signatory
MV VENTURE PARTNERS II, SERIES 9
[signature illegible]
-----------------------------------------
By:______________________________________
Its:_____________________________________
ICON INTERNATIONAL, INC.
/s/ Lance Lunzberg
-----------------------------------------
By: Mr. Lance Lunzberg
Its: President
PEDER SMEDVIG CAPITAL VENTURE III AS
[signature illegible]
-----------------------------------------
By:______________________________________
(Please print)
Its:_____________________________________
WARREN T. LAZAROW
/s/ Warren T. Lazarow
-----------------------------------------
<PAGE>
SEMIR D. SIRAZI
/s/ Semir D. Sirazi
-----------------------------------------
TRIAD MEDIA VENTURES LLC
By: Triad Media Management LLC
Its Managing Member
By: [signature illegible]
--------------------------------------
A Managing Member
<PAGE>
EXHIBIT 10.2
FOGDOG, INC.
1999 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of
Fogdog, Inc., a Delaware corporation, by providing eligible persons in the
Corporation's service with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentives
programs:
- the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or
Subsidiary),
- the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual retainer
fee otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services
to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. Only non-employee Board members shall be eligible to participate in
Automatic Option Grant and the Director Fee Option Grant Programs.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 6,296,631
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under that Predecessor Plan, (ii) plus
an additional increase of 800,000 shares to be approved by the Corporation's
stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January of
each of the calendar years
3.
<PAGE>
from 2001 through 2005, by an amount equal to three percent
(3%) of the total number of shares of Common Stock outstanding on the last
trading day in December of the immediately preceding calendar year, but in no
event shall any such annual increase exceed 2,000,000 shares.
C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall not
be available for subsequent issuance under the Plan.
4.
<PAGE>
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for w hich any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan and under each installment of option shares scheduled to
vest or become exercisable subsequently pursuant to such option, (v) the number
and/or class of securities and exercise price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan and
under each installment of option shares scheduled to vest or become exercisable
subsequently pursuant to such option and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than one hundred percent (100%) of the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Seven and
the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through
a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable instructions to (a) a Corporation-
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
----------------------------
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6.
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently exercised
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will
or the laws of inheritance or by the Optionee's designated beneficiary or
beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for Misconduct or
should the Optionee otherwise engage in Misconduct while holding one or
more outstanding options under this Article Two, then all those options
shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period
or (if earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for which the
option has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the limited
exercise period otherwise in effect for that option to such greater period
of time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable post-
Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
7.
<PAGE>
D. Stockholder Rights. The holder of an option shall have no stockholder
------------------
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
-----------------
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may be assigned
in whole or in part during the Optionee's lifetime to one or more members of the
Optionee's family or to a trust established exclusively for one or more such
family members or to Optionee's former spouse, to the extent such assignment is
in connection with the Optionee's estate plan or pursuant to a domestic
relations order. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares of
-----------------
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000).
8.
<PAGE>
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become exercisable for all
the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully vested shares of Common Stock.
However, an outstanding option shall not become exercisable on such an
accelerated basis if and to the extent: (i) such option is, in connection with
the Corporate Transaction, to be assumed by the successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
- --------
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and
9.
<PAGE>
(iii) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon the consummation of such
Corporate Transaction, and the shares subject to those terminated rights shall
thereupon vest in full.
F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall become exercisable for all the shares of Common Stock
at the time subject to those options in the event the Optionee's Service is
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those options are assumed and do not
otherwise accelerate. In addition, the Plan Administrator may structure one or
more of the Corporation's repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more of
the Corporation's repurchase rights under the Discretionary Option Grant Program
so that those rights shall terminate automatically upon the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full. Alternatively, the Plan Administrator may condition the
automatic acceleration of one or more outstanding options under the
Discretionary Option Grant Program and the termination of one or more of the
10.
<PAGE>
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is approved
by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
11.
<PAGE>
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
-----
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock at the time
subject to such option (whether or not the Optionee is otherwise vested in
those shares) over (B) the aggregate exercise price payable for those
shares. Such cash distribution shall be paid within five (5) days following
the option surrender date.
(iii) At the time such limited stock appreciation right is granted,
the Plan Administrator shall pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be required
at the time of the actual option surrender and cash distribution.
12.
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
--------
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
13.
<PAGE>
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this program,
and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
----------------------------
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each calendar month of Service in the calendar year for which the
salary reduction is in effect. Each option shall have a maximum term of ten
(10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service
--------------------------------
for any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
-------
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under
this Article Three, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of the option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon
the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all the shares of Common Stock
14.
<PAGE>
at the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the earliest to occur of (i) the expiration of the ten
--------
(10)-year option term, (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Service, (iii) the termination of
the option in connection with a Corporate Transaction or (iv) the surrender of
the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each outstanding
option granted him or her under the Salary Investment Option Grant Program. The
Optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the shares of
Common Stock at the time subject to the surrendered option (whether or not the
option is otherwise at the time exercisable for those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. The Primary Committee shall, at the time the option with such
limited stock appreciation right is granted under the Salary Investment Option
Grant Program, pre-approve any subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no further approval of the
Primary Committee or the Board shall be required at the time of the actual
option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
E. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
15.
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE>
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any Change
in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a non-
employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase 2,500 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 2,500-share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
10,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of three (3) successive equal annual installments upon the
Optionee's completion of each year of service as a Board member over the three
(3)-year period measured from the
19.
<PAGE>
option grant date. The shares subject to each annual 2,500-share option grant
shall vest up the Optionee's completion of one (1)-year of Board service
measured from the grant.
E. Limited Transferability of Options. Each option under this
----------------------------------
Article Five may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with the Optionee's estate plan
or pursuant to domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the person
or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or the designated beneficiary or
beneficiaries of such option) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to exercise
each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
20.
<PAGE>
(iv) In no event shall the option remain exercisable
after the expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Board service
for any reason other than death or Permanent Disability, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become exercisable for
all the option shares as fully-vested shares of Common Stock and may be
exercised for any or all of those vested shares. Immediately following the
consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become exercisable for all
the option shares as fully-vested shares of Common Stock and may be exercised
for any or all of those vested shares. Each such option shall remain exercisable
for such fully-vested option shares until the expiration or sooner termination
of the option term or the surrender of the option in connection with a Hostile
Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required at the time of the
actual option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such
21.
<PAGE>
Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option, provided the
--------
aggregate exercise price payable for such securities shall remain the same. To
the extent the actual holders of the Corporation's outstanding Common Stock
receive cash consideration for their Common Stock in consummation of the
Corporate Transaction, the successor corporation may, in connection with the
assumption of the outstanding options under this Plan, substitute one or more
shares of its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22.
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
23.
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each calendar month of Board service during the calendar year for
which the retainer fee election is in effect. Each option shall have a maximum
term of ten (10) years measured from the option grant date.
D. Limited Transferability of Options. Each option under this
----------------------------------
Article Six may be assigned in whole or in part during the Optionee's lifetime
to one or more members of the Optionee's family or to a trust established
exclusively for one or more such family members or to Optionee's former spouse,
to the extent such assignment is in connection with Optionee's estate plan or
pursuant to a domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate. The Optionee may also designate one
or more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
- -------
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
-------
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. In the event of the
Optionee's death while holding such option, the option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
24.
<PAGE>
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
- -------
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
-------
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the
earliest to occur of (i) the expiration of the ten (10)-year option term, (ii)
- --------
the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Board service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
25.
<PAGE>
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same. To the extent the actual
holders of the Corporation's outstanding Common Stock receive cash consideration
for their Common Stock in consummation of the Corporate Transaction, the
successor corporation may, in connection with the assumption of the outstanding
options under this Plan, substitute one or more shares of its own common stock
with a fair market value equivalent to the cash consideration paid per share of
Common Stock in such Corporate Transaction.
E. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant at any time on or after the Plan Effective Date, and
the initial option grants under the Automatic Option Grant Program shall also be
made on the Plan Effective Date to any non-employee Board members eligible for
such grants at that time. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i)
--------
September 20, 2009, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Should the Plan terminate on September 30, 2009, then all option
grants and unvested stock issuances outstanding at that time shall continue to
have force and effect in accordance with the provisions of the documents
evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
28.
<PAGE>
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority
of the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause (A)
who were still in office at the time the Board approved such election or
nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
<PAGE>
G. Corporation shall mean Fogdog, Inc., a Delaware corporation, and
-----------
any corporate successor to all or substantially all of the assets or voting
stock of Fogdog, Inc. which shall by appropriate action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under Article Two of the Plan.
J. Eligible Director shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant Program or the Director Fee Option
Grant Program in accordance with the eligibility provisions of Articles One,
Five and Six.
K. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market for
the Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is to be sold in the initial
public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE>
N. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of management
to which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and percentage target
bonus under any corporate-performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation without
the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3.
<PAGE>
U. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
----
set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's Amended and
----------------
Restated 1996 Stock Option Plan in effect immediately prior to the Plan
Effective Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under Article Three of the Plan.
DD. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
A-4.
<PAGE>
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article Four of the Plan.
JJ. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market
--------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5.
<PAGE>
EXHIBIT 10.3
FOGDOG, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Fogdog, Inc., a Delaware corporation, by providing eligible employees with
the opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall be limited to 500,000
shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January of
each of the calendar years from 2001 through 2005, by an amount equal to one
percent (1%) of the total number of shares of Common Stock outstanding on the
last trading day in December of the immediately preceding calendar year, but in
no event shall any such annual increase exceed 1,000,000 shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum
<PAGE>
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive overlapping offering periods until such time as
(i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Offering periods shall commence at semi-annual intervals on the
first business day of February and August each year over the term of the Plan.
Accordingly, two (2) separate offering periods shall commence in each calendar
year over the term of the Plan. Each offering period shall be of twenty-four
(24) months' duration unless otherwise determined by the Plan Administrator
prior to the start date of such offering period. However, the initial offering
period shall commence at the Effective Time and terminate on the last business
day in January 2002. The second offering period shall commence on the first
business day in February 2000, and terminate on the last business day in January
2002. The date on which an offering period begins shall be designated the Start
Date of such offering period.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in July 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the Start Date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and Participants in such
terminated offering period shall automatically be enrolled in the new offering
period commencing on the next business day following such Purchase Date.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the Start Date of
any offering period under the Plan may enter that offering period on such start
date.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter a subsequent offering period on the
Start Date of that offering period.
2.
<PAGE>
C. An Eligible Employee may participate in only one offering period at
any time.
D. Except as provided in IV. D above, to participate in the Plan for a
particular offering period, the Eligible Employee must complete the enrollment
forms prescribed by the Plan Administrator (including a stock purchase agreement
and a payroll deduction authorization) and file such forms with the Plan
Administrator (or its designate) on or before the scheduled Start Date of such
offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Start Date of the offering period and
shall (unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be required to be held in any segregated account or trust fund and may be
commingled with the general assets of the Corporation and used for general
corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
3.
<PAGE>
VII. PURCHASE RIGHTS
A. Grant of Purchase Rights. A Participant shall be granted a
------------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Start Date of the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Start
Date of that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date. However, for the offering period beginning February
1, 2000, in the event the Fair Market Value on such date is lower than the price
per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement, then, for all purposes under the Plan,
the clause (i) amount for such offering shall be the price per share at which
the Common Stock is sold in the initial public offering pursuant to the
Underwriting Agreement.
D. Number of Purchasable Shares. The number of shares of Common Stock
----------------------------
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 750 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum number of
shares of Common Stock purchasable in total by all Participants on any one
Purchase Date shall not exceed 125,000 shares, subject to periodic adjustments
in the event of certain changes in the Corporation's capitalization. However,
the Plan Administrator shall have the discretionary authority, exercisable prior
to the start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in total by all Participants on each Purchase Date during that offering
period.
4.
<PAGE>
E. Excess Payroll Deductions. Any payroll deductions not applied
-------------------------
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If
no such election is made at the time such purchase right is terminated,
then the payroll deductions collected with respect to the terminated right
shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for
which the terminated purchase right was granted. In order to resume
participation in any subsequent offering period, such individual must re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before the scheduled Start Date of that offering period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his
or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf for that
Purchase Interval or (b) have such funds held for the purchase of shares on
his or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return to
active service (x) within ninety (90) days following the commencement of
such leave or (y) prior to the expiration of any longer period for which
such Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan shall
automatically resume at the rate in
5.
<PAGE>
effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return. An individual who returns to active
employment following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly re-
enroll in the Plan (by making a timely filing of the prescribed enrollment
forms) on or before the scheduled Start Date of the offering period.
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Start Date of the offering period in which such Change in Control
occurs or (ii) the Fair Market Value per share of Common Stock immediately prior
to the effective date of such Change in Control. However, the applicable
limitation on the number of shares of Common Stock purchasable per Participant
shall continue to apply to any such purchase, but not the limitation applicable
to the maximum number of shares of Common Stock purchasable in total by all
Participants on any one Purchase Date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans
6.
<PAGE>
(within the meaning of Code Section 423)) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than Twenty-
Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value per share
on the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000.00) worth of Common Stock (determined on the basis of the
Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on September 22, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2009, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Fogdog, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
C. Cash Earnings shall mean the (i) regular base salary paid to a
-------------
Participant by one or more Participating Companies on each payroll date during
such individual's period of participation in one or more offering periods under
the Plan plus (ii) all overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments received on each such date. Such
Cash Earnings shall be calculated before deduction of (A) any income or
employment tax withholdings or (B) any contributions made by the Participant to
any Code Section 401(k) salary deferral plan or Code Section 125 cafeteria
benefit program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall not include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
B. Change in Control shall mean a change in ownership of the
-----------------
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
A-1.
<PAGE>
F. Corporation shall mean Fogdog, Inc., a Delaware corporation, and
-----------
any corporate successor to all or substantially all of the assets or voting
stock of Fogdog, Inc. which shall by appropriate action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering of such Common Stock. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section 3401
(a).
J. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
K. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
L. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
A-2.
<PAGE>
M. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
----------
N. Plan shall mean the Corporation's 1999 Employee Stock Purchase
----
Plan, as set forth in this document.
O. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
P. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The first Purchase Date shall be July 30, 2000.
Q. Purchase Interval shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
R. Start Date shall mean the date on which an offering period begins
----------
and shall be either the first business day in February or August each year,
provided, however, that the Start Date of the initial offering period shall be
the Effective Time.
S. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
EXHIBIT 10.13
ORDER FULFILLMENT SERVICES AGREEMENT
ORDER FULFILLMENT SERVICES AGREEMENT (this "Agreement") dated as of the
seventeenth day of September 1999, by and between Keystone Fulfillment, Inc.
("Keystone"), a Delaware corporation with a principal place of business located
at 101 Kindig Lane, Hanover, Pennsylvania, and Fogdog, Inc. ("Fogdog,"), a
California corporation with a principal place of business located at 500
Broadway, Redwood City, California.
W I T N E S S E T H:
WHEREAS, Keystone and its affiliates are engaged in the business of direct
response marketing to consumers;
WHEREAS, Fogdog is engaged in the business of the direct marketing of
sporting goods (the "Fogdog Merchandise") and proposes to continue to conduct
for the Term (as defined below) of this Agreement to market Fogdog Merchandise
to consumers through its website(s) (the "Fogdog Business");
WHEREAS, Fogdog proposes that Keystone provide fulfillment and other
services respecting the Fogdog Business; and
WHEREAS, subject to the terms and conditions herein contained, Keystone
desires to provide such services as set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter made by the parties hereto, Fogdog and Keystone agree as follows:
1. Appointment: Acceptance. Subject to the terms and conditions set forth in
------------------------
this Agreement, Fogdog hereby appoints Keystone to coordinate and/or
perform the services described herein for the Term. Keystone hereby
accepts such appointment and agrees to coordinate and/or perform such
services as provided herein for the Term.
2. Fulfillment Services. Keystone will provide or coordinate fulfillment
--------------------
services to Fogdog in connection with the Fogdog, Business such services
being described, and to be performed in accordance with the Performance
Standards and Statement of Work set forth, in Exhibit C. Fees for these
---------
services are to be billed to and paid by Fogdog in accordance with the fee
schedule set forth in Exhibit A attached hereto and made a part hereof.
---------
In addition, [*] shall arrange and be responsible for payment of all costs
for the procurement of insurance in an amount sufficient to cover the
replacement cost of Fogdog Merchandise in the possession of Keystone at its
facility. Except for shipping work performed by third-party carriers,
Keystone shall remain liable for all work it outsources under this
Agreement.
3. Certain Fogdog Obligations. Fogdog will:
--------------------------
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
a. pay Keystone per the fee schedule attached as Exhibit A for, and
---------
reimburse Keystone for all reimbursable expenses as described and at
the rates indicated in Exhibit A which are incurred by Keystone in
connection with, all services performed by Keystone on Fogdog's
behalf;
b. arrange for delivery of Fogdog Merchandise to Keystone's facility, in
accordance with the standard vendor compliance procedures set forth in
Exhibit B attached hereto and made a part hereof, as the same may be
---------
modified from time to time by the parties;
c. [*]
d. pay for all costs of stationery and packaging and other supplies
required in connection with the Fogdog Business, such items to be
billed by Keystone in accordance with Exhibit A;
---------
e. arrange and pay for the disposition of any overstocks remaining unsold
at the end of the Term of this Agreement, including payment of all
costs of customs duties, transportation and insurance after the Term
of this Agreement; and
f. provide Keystone on or prior to the execution and delivery of this
Agreement with a duly executed original Pennsylvania resale
certificate and sales tax exemption certificate.
4. Reporting: Invoice; Right to Suspend Services for Nonpayment. [*]
-------------------------------------------------------------
Keystone will provide to Fogdog a detailed statement and invoice respecting
services provided by Keystone and amounts due to Keystone as provided in
Exhibit A and within [*] following conclusion of the Term. Failure to
---------
present a timely invoice, however, shall not affect Fogdog's obligation to
pay any amount due under this Agreement. Invoiced amounts shall be payable
as set forth on Exhibit A. Amounts not paid when due shall be subject to a
---------
late-payment fee of [*] or, if such rate exceeds the highest rate permitted
by applicable law, the highest rate so permitted. If Fogdog fails to pay in
full when due any invoice rendered by Keystone, except for amounts
regarding disputed items as to which Keystone has received notification,
Keystone may notify Fogdog of such failure and, if such failure is not
remedied within [*] after receipt of such notice, Keystone may, without
incurring any liability, suspend some or all services being provided to
Fogdog until Fogdog cures such default. Such remedy shall be cumulative and
not exclusive of any other remedies provided by law.
5. Representations and Warranties.
------------------------------
a. Each Party represents and warrants to the other: that it has full
power and authority to enter into this Agreement and to undertake its
obligations pursuant hereto; that this Agreement constitutes a valid
and binding agreement of such party, enforceable in accordance with
its terms (except as enforceability may be limited by creditors'
rights laws and equitable remedies); that the execution,
2
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
delivery and performance of this Agreement do not and will not
conflict with or result in a breach of or constitute a default under
any provision of the charter or by-laws of such party, or give rise to
any default under any material contractual obligation of such party or
violate any provisions of any law, rule, regulation, order, writ,
judgment, injunction, statute, decree, determination or award having
applicability to such party or any of its affiliates or its or their
properties; and that it is duly qualified or licensed in all
jurisdictions wherein the nature of the business conducted by it or
the character or location of its properties makes such qualification
or licensing necessary, except where the failure so to be qualified or
licensed would not, if left unremedied, impair the other party's
ability to perform its respective obligations under this Agreement.
b. Fogdog represents and warrants to Keystone that in the conduct of the
Fogdog Business as it pertains to any and all Fogdog Merchandise, and
other items supplied by Fogdog or one of its vendors, Keystone
handles, comes into contact with, or has possession of: Fogdog is the
absolute owner of all its patents, trademarks, service marks,
trademark and service mark applications, trade names, copyrights,
trade secrets and other intellectual property used in its business
and/or to be used in the Fogdog Business, or has, to its knowledge,
and will use its best efforts to continue to have during the Term of
this Agreement, all necessary authority of the corporations,
partnerships and individuals whose products and services will be
offered for sale in the Fogdog Business to use their patents,
trademarks, service marks, trade names, trademark and service mark
registrations, copyrights, trade secrets and other intellectual
property for all purposes of conducting the Fogdog Business. Fogdog's
Business, as it pertains to any and all Fogdog Merchandise, and other
items supplied by Fogdog or one of its vendors, Keystone handles,
comes into contact with, or has possession of, as conducted or as
currently proposed to be conducted does not and will not, to Fogdog's
knowledge after due inquiry, cause Fogdog to infringe or violate any
patents, trademarks, service marks, trade names, copyrights, licenses,
trade secrets or other proprietary or intellectual property rights
(including, without limitation, rights of privacy and publicity) of
any other person or entity.
6. Vendor. Fogdog will be the vendor of Fogdog Merchandise to Fogdog Business
------
customers. Fogdog will be responsible for any required sales tax
registrations, filings and remittances. Fogdog shall provide Keystone with
a schedule of all jurisdictions for which Keystone is to bill Fogdog's
customers for sales and use tax pursuant to section 2(f) of this Agreement.
For each jurisdiction listed, such schedule shall indicate whether the non-
merchandise components (e.g. delivery charges, insurance, etc.) of Fogdog's
customer billing shall be included in the tax base for calculating sales
and use tax. Fogdog shall provide Keystone with a product matrix schedule,
by SKU number and jurisdiction, indicating each jurisdiction in which the
sales price of such SKU number shall be wholly or partially exempt from
sales and use tax. For any SKU number partially exempt from sales and use
tax, the limits of such exemption shall be indicated. All products not
appearing on the product matrix schedule shall be included in the tax base
in all jurisdictions for which Fogdog has requested Keystone to bill sales
and use tax. The schedules to be provided by Fogdog in accordance with
this section shall be
3
<PAGE>
provided to Keystone no later than thirty (30) days prior to the
commencement of order processing pursuant to section 2(a) of this
Agreement. Pursuant to Section 2(f) of this Agreement, Keystone shall bill
Fogdog's customers for sales and use taxes for Pennsylvania and such other
jurisdictions appearing on Fogdog's schedule of jurisdictions for which
Keystone is to bill Fogdog's customers for sales and use tax. Sales and use
taxes shall be billed at the current rate, as reported by Vertex or such
other third-party national sales tax rate directory as may be used by
Keystone, for the date on which orders to Fogdog's customers are received.
Keystone makes no representations or warranties as to the accuracy of the
information provided by Vertex or any other third-party national sales tax
directory. Keystone shall amend the schedule listing the jurisdictions,
products and/or other amounts billed to Fogdog's customers for which it
bills sales and use taxes within thirty (30) days of receipt of a written
request for an amendment from Fogdog. Keystone shall not be held
responsible for the collection of sales and use taxes that are unpaid by
Fogdog's customers nor for any failure to bill the proper sales and use
taxes provided Keystone has complied with the provisions of this section.
7. Compliance with Laws. In performing its obligations under this Agreement,
--------------------
each party shall comply with all applicable federal, state and local laws,
rules, regulations and orders.
8. Confidentiality. The parties (including their officers, directors,
---------------
shareholders, affiliates, agents, employees, consultants, other
representatives, successors, and assigns) agree that all confidential or
proprietary information (the "Confidential Information"), including,
without limitation, customer names, addresses and other related data and
pricing, fulfillment and other operational information, received by each as
a result of the project contemplated hereby, shall be maintained in
strictest confidence, shall not be disclosed to anyone other than employees
or agents of the respective parties whose duties require access to such
information, and shall be used solely by the parties to carry out this
Agreement and the transactions contemplated thereby. Keystone specifically
agrees not to use for its own Purposes, or to provide to a third party, any
customer or mailing lists of Fogdog that comes into its possession without
the prior written consent of Fogdog,. The parties further agree that any
public statements made by either party concerning this Agreement or the
transactions contemplated herein, unless required by law, shall require the
prior written approval of the other party. In addition, should either
party be required to disclose the Confidential Information or any part of
it to the Securities and Exchange Commission, the par-ties agree to
cooperate with each to obtain confidential treatment of such information.
9. Effectiveness and Termination.
-----------------------------
a. This Agreement shall be effective as of the date first set forth above
and shall continue in full force and effect through [*] ("the Term"),
unless earlier terminated by either party upon:
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
(1) if not cured within thirty (30) days following written notice
thereof, the failure of the other party to comply substantially
with any material provision of this Agreement, including but not
limited to:
(a) Section 2 payment obligations and Exhibit A;
(b) Section 4;
(c) Section 5;
(d) Section 12;
(e) Exhibit C: Merchandise Receipt Performance Standards;
(f) Exhibit C: Collate, Printing, Picking, Packing and Shipping
Performance Standards for Regular Orders;
(g) Exhibit C: Inventory Shrinkage; and
(h) Exhibit C: Priority Order Processing.
(2) the commencement of any voluntary or involuntary bankruptcy,
insolvency, reorganization, readjustment of debt, dissolution
(except by way of merger or consolidation), liquidation of debt,
or other insolvency proceeding by or against the other party;
(3) the suspension or termination of the other party's business or
the appointment of a receiver, trustee, or similar officer to
take charge of a substantial part of the other party's assets;
(4) the other party admitting in writing its inability to pay its
debts when due; or
(5) one hundred eighty (180) days' prior written notice given to the
other party.
Fogdog will pay all reasonable expenses associated with moving
inventory out of Keystone's facilities should Keystone terminate this
Agreement pursuant to this Section 9.
b. Upon termination of this Agreement, if Fogdog has failed to pay any
undisputed amounts due hereunder, Keystone shall have a lien against
any remaining Fogdog Merchandise until payment by Fogdog of all
undisputed outstanding amounts, subject to the provisions of the
Uniform Commercial Code or other relevant law. Such remedy shall be
cumulative and in addition to any other remedies Keystone may have in
law or equity.
10. Automatic Renewal of Agreement. This Agreement shall be automatically
------------------------------
renewed for successive two (2) year periods after the Term (each also a
"Term") unless either party provides the other party with written notice at
least one hundred twenty (120) days before the end of the then current Term
that such party does not want to renew this Agreement.
11. No-Hire. Each party agrees that, during and for a period of two (2) years
-------
after the Term, or, if this Agreement is earlier terminated, then for the
period when the Agreement is in effect and thereafter for a period of two
(2) years from the date of the Agreement's
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
termination, neither it nor any of its affiliates or associates, directly
or indirectly, will solicit with a view toward hiring any of the current
officers, employees, consultants, or other representatives of the other (as
officer, employee, consultant or otherwise) without obtaining the prior
written consent of the other party.
12. Indemnification; Limitation on Liability. Fogdog shall indemnify, defend
----------------------------------------
and hold harmless Keystone, its officers, directors, shareholders,
affiliates, agents, employees, consultants, other representatives,
successors and assigns from and against any and all actions, losses,
liabilities, costs, damages, claims, demands, judgments and expenses of any
kind (including, without limitation, attorneys' and experts' fees, costs
and expenses) (collectively, "Claims"), arising out of or incident to this
Agreement, including, without limitation, Claims (a) arising out of the
sale, distribution, possession or use of Fogdog Merchandise; or (b)
relating to infringement by Fogdog of any patents, copyrights, trademarks,
trade names, service marks, trademark or service mark registrations or
expropriation of ideas, trade secrets, or other intellectual property or
proprietary rights, including, without limitation, rights of privacy or
publicity, as such infringement relates to any and all Fogdog Merchandise,
and other items supplied by Fogdog or one of its vendors, Keystone handles,
comes into contact with, or has possession of; or (c) arising out of or
incident to any breach of this Agreement or any violation of law
(including, without limitation, export and customs laws, rules, regulations
and orders) by Fogdog or a Fogdog affiliate, associate, agent, broker,
vendor or representative to the extent liability is actually incurred by
Keystone; or (d) respecting sales or use taxes arising in connection with
this Agreement, including, without limitation, any such tax which is or may
become due in respect to customers' purchases of Fogdog Merchandise, the
provision of services hereunder by Keystone, or federal, state or local
income or other taxes levied on Fogdog.
Keystone shall indemnify, defend and hold harmless Fogdog, its officers,
directors, shareholders, affiliates, agents, employees, consultants, other
representatives, successors and assigns from and against any and all Claims
brought against it (a) by or on account of any third party arising out of
or incident to the gross negligence or willful misconduct of Keystone; or
(b) arising out of or incident to any breach of this Agreement or any
violation of law (including, without limitation, export and customs laws,
rules, regulations and orders) by Keystone or a Keystone affiliate,
associate, agent, broker, vendor or representative to the extent liability
is actually incurred by Fogdog. Except in regard to infringements of
intellectual property rights as they pertain to any and all Fogdog
Merchandise, and other items supplied by Fogdog or one of its vendors,
Keystone handles, comes into contact with, or has possession of, each
party's liability for damages under this Agreement, whether in contract, in
tort or otherwise, shall not exceed in the aggregate the amount paid for
the services provided by Keystone hereunder. Subject to the provisions of
Section 19 respecting injunctive remedies for breach of the confidentiality
and no-hire provisions hereof, monetary damages shall be each party's
exclusive remedy against the other or any of the other's officers,
directors, shareholders, affiliates, agents, employees, consultants, other
representatives, successors and assigns.
The procedure for indemnification regarding third party Claims shall be as
follows: (a) The party seeking indemnification (the "Indemnified Party")
will give prompt written notice to the other party (the "Indemnifying
Party") of any Claim which it discovers or of which it receives notice,
stating the nature, basis, and (to the extent known) amount thereof;
provided, however, that failure to give prompt notice shall not jeopardize
the right of the Indemnified Party to indemnification unless such failure
shall have materially prejudiced the ability of the Indemnifying Party to
defend such Claim. (b) The Indemnifying Party shall be entitled, at its own
expense, to participate in the defense of such Claim and, if (1) the Claim
seeks solely monetary damages; (2) the Indemnifying Party confirms, in
writing, its obligations hereunder to indemnify and hold harmless the
Indemnified Party with respect to such Claim in its entirety; and (3) the
Indemnifying Party shall have made provision which, in the reasonable
judgment of the Indemnified Party, is adequate to satisfy any adverse
judgment as a result of its indemnification obligation with respect to such
Claim, then the Indemnifying Party shall be entitled to assume and control
such defense with counsel chosen by it and approved by the Indemnified
Party, which approval shall not be unreasonably withheld. The Indemnified
Party shall be entitled to participate therein after such assumption at its
own expense. Upon assuming such defense, the Indemnifying Party shall have
full rights to dispose of such Claim and enter into any monetary compromise
or settlement which is dispositive of the matters involved, provided that
such settlement is paid in full and will not have any direct or indirect
adverse effect upon the Indemnified Party. (c) With respect to any Claim as
to which (1) the Indemnifying Party does not have the right to assume the
defense, or (2) the Indemnifying Party does not exercise its right to
assume the defense, the Indemnified Party shall assume and control the
defense of such Claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
Claim at its own expense. The Indemnifying Party shall be obligated to pay
the reasonable attorneys' fees and expenses and other costs relating to
such defense. The Indemnified Party shall have full rights to dispose of
such Claim and enter into any monetary compromise or settlement which is
dispositive of the matters involved, provided that it shall act reasonably
and in good faith in doing so. (d) Both the Indemnifying Party and the
Indemnified Party shall cooperate fully with each other in connection with
the defense, compromise, or settlement of any Claim including, without
limitation, by making available to each other all pertinent information and
witness within a party's control.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
13. Force Majeure; No Consequential Damages. In the event that either party
---------------------------------------
shall be unable to perform under this Agreement because of circumstances
constituting a force majeure, including, without limitation, acts of God,
accident, fire, flood, explosion, the elements, strikes, embargo, sabotage,
acts of war or of military authorities, civil disturbances, transportation
stoppages, acts or omissions of carriers, inability to secure fuel,
failures of electrical supply or communications services, acts of computer
hackers, or other causes beyond its control, such party shall not be deemed
to be in breach of this Agreement or liable to the other for failure to
perform hereunder. None of the foregoing, however, shall excuse any
failure of either party to pay money as and when due hereunder. In no case
shall either party be liable to the other for any consequential, incidental
or indirect losses or damages of any kind arising out of or in any way
connected with this Agreement, even if such party has been advised of the
possibility of such losses or damages.
7
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
14. Binding Effect, No Assignment. This Agreement shall be binding upon and
-----------------------------
inure to the benefit of the parties hereto and their respective successors
and assigns. This Agreement may not be assigned or otherwise transferred by
either party without the written consent of the other party, except that
either party shall be permitted to assign this Agreement to any party under
common control with it or to a successor in interest by way of merger,
acquisition or other lawful succession without such consent unless such
successor is a direct competitor of the other party. Any purported
assignment or other transfer in violation of this section shall be null and
void.
15. Independent Contractors: No Third-Party Rights. Nothing contained in this
-----------------------------------------------
agreement shall be construed to give either party the power to direct or
control the day-to-day activities of the other. The parties are, and in
all respects of their relationship to one another and their respective
performances hereunder shall be, independent contractors, and neither this
Agreement nor anything herein contained shall be deemed or construed to
constitute the parties as partners, joint venturers, principal and agent,
co-owners or otherwise as participants in a joint or common undertaking.
16. Modification; No Waiver; Severability. No modification or waiver of any
-------------------------------------
provision of this Agreement shall be effective unless and only to the
extent expressed in a mutually executed agreement. No failure or delay by
any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege. Should any provision of this Agreement be determined to be
void, invalid or otherwise unenforceable by any court of competent
jurisdiction, such determination shall not affect the remaining provisions
hereof, which shall remain in full force and effect.
17. Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed under the laws of the State of Pennsylvania, without regard to
such state's conflict of laws rules. THE PARTIES HEREBY AGREE TO SUBMIT TO
THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN
THE STATE OF PENNSYLVANIA, AND HEREBY WAIVE ANY OBJECTION BASED ON VENUE OR
FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN AND ANY
RIGHT TO TRIAL BY JURY.
18. Notices. Except as otherwise provided in this Agreement, notices required
-------
to be given pursuant to this Agreement will be effective upon receipt (or
upon rejection of receipt) when hand-delivered in writing, sent by prepaid
express delivery courier, sent by first class certified mail, return
receipt requested, with postage fully prepaid, or sent by facsimile
followed by a confirmation letter of such delivery method, to the parties
at the respective addresses and numbers below:
8
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
(a) if to Keystone:
Keystone Fulfillment, Inc.
5022 Hollins Road
Roanoke, VA
Attention: Gary Firebaugh
Vice President
Telephone: 540-561-7746
Facsimile: 540-561-7755
With a copy to:
Hanover Direct, Inc.
1500 Harbor Boulevard
Weehawken, NJ 07087
Attention: General Counsel
Telephone: 201-272-3484
Facsimile: 201-272-3495
(b) if to Fogdog:
Fogdog, Inc.
500 Broadway
Redwood City, CA 94063
Attention: Mohan Komanduri
Director of Logistics
Telephone: 650-980-2577
Facsimile: 650-980-2600
with a copy to:
Fogdog, Inc.
500 Broadway
Redwood City, CA 94063
Attention: Pat McGovern
General Counsel
Telephone: 650-980-2546
Facsimile: 650-980-2608
19. Survival; Injunctive Relief; Remedies Cumulative. The confidentiality and
------------------------------------------------
no-hire provisions hereof shall survive the expiration or earlier
termination of this Agreement and the consummation or termination of the
transactions contemplated hereby. The parties agree that the remedy at law
for any breach of such provisions would be inadequate; that the injured
party shall be entitled to seek injunctive relief in addition to any other
remedy to which it may be entitled. Notwithstanding the expiration or
earlier termination of this
9
<PAGE>
Agreement neither party hereto shall be released from any liability or
obligation hereunder (whether in the nature of indemnification or
otherwise) which has already accrued as of the time of such expiration or
termination or which thereafter might accrue in respect of any act or
omission of such party prior to such expiration or termination. The
remedies provided herein are cumulative and not exclusive of any other
remedies that a party may have in law or equity.
20. Entire Agreement; Counterparts. With respect to the matters contemplated
------------------------------
herein, this Agreement constitutes the entire understanding between the
parties and supersedes all prior oral and written communications,
negotiations, understandings and agreements between such parties in
relation to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute the same agreement.
21. Number and Gender. Whenever appropriate in this Agreement, terms in the
-----------------
singular number shall include the plural (and vice versa) and each gender
form shall include all others.
22. Headings. Section headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
23. Drafting. This Agreement shall be treated as an agreement that was jointly
--------
drafted by all parties signing it and shall not be read against any
particular drafter of the Agreement or any provision therein.
24. Attorneys' Fees and Litigation Expenses. In the event that any legal
---------------------------------------
proceeding concerning the validity, enforcement or interpretation of the
provisions of this Agreement is instituted, the prevailing party in such
proceeding shall be entitled to recover its reasonable attorneys' fees and
other litigation expenses incurred in such proceeding, in addition to any
other relief to which it may be entitled, from the losing party.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
KEYSTONE FULFILLMENT, INC.
By: /s/ Gary A. Firebaugh
-----------------------------------
Name: Gary A. Firebaugh
Title: Vice President, Marketing
FOGDOG, INC.
By: /s/ Timothy Harrington
-----------------------------------
Name: Timothy Harrington
---------------------------------
Title: CEO
--------------------------------
10
<PAGE>
Exhibit A
Schedule of Fees
[*]
11
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Orders/month
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[*]
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE>
Exhibit B
Standard Vendor Compliance Procedures
Packaging
Vendors are expected to deliver merchandise in prepackaged units exactly as they
are to be sold to the customer. All items require packaging that will protect
them during distribution, storage, handling and shipping. There are four
package formats that are acceptable to Keystone:
Polybags
--------
Non-fragile items can be packaged in individual, fully vented polybags
labeled with the Fogdog item number. Multiple items of the same item
number may be packed into a master carton. Polybags are appropriate for
small items which will not easily break during handling and for textile
items.
Boxes
-----
Items may be packaged in a retail box made from kraft board or corrugated
boxes. This may be appropriate for non-fragile items or where there is
sufficient inner protection to prevent damage from shock or vibration. If
the product is exposed, or the item may fall out of the package during
conveyance, a polybag, shrink film or over-box must be used. These items
must be delivered in a master carton.
Protective Packaging
--------------------
Items which can easily break must have protection sufficient to withstand
the normal distribution handling and shipping environment.
Ship-Alone Packaging
---------------------
Items that are greater than 23 inches in length or weigh more than 30
pounds must be packaged in mailable containers. These items will be sent
directly to the customer and will not be over-boxed.
Master Cartons
--------------
Items less than 23 inches in length or less than 30 pounds should be in
master cartons. The master carton size should not exceed 36"L x 26"W x
20"H, nor exceed 50 pounds. Each master carton must contain only one
Fogdog item number.
Labeling
Individual Unit Label
---------------------
16
<PAGE>
Each individual selling unit must have an identification label. The label
must show the Fogdog item number and the country of origin. This does not
necessarily need to be externally marked.
Master Carton Labeling
----------------------
Each master carton must have the following information clearly marked or
labeled on the outside of the carton:
. Fogdog
. Fogdog Item Number
. Purchase Order Number
. Color
. Quantity
. Case Number ___ of ____
. Made in:
. Destination
Shipping Requirements
Advance Shipping Notification (ASN)
-----------------------------------
All inbound shipments must be scheduled through the Traffic Department
using an ASN. This must be faxed to the Traffic Department at (717) 633-
3202 at least 3 days before shipping. The Traffic Department will return
the form within 24 hours with a Request Number. Questions about ASNs
should be directed to the Traffic Coordinator at (717) 633-3276.
Loading the Truck
-----------------
The truck must be loaded by purchase order and then by item number within
that purchase order.
Packing List
------------
A detailed packing list must accompany each shipment and should be attached
to the last container/pallet loaded in the trailer. There should be one
packing list for each purchase order shipped.
Routing Guide
For inbound shipments arriving at Keystone with collect freight terms, the
carriers shown in this routing guide should be used. Other carriers may be used
if agreed to in writing by Keystone before shipments are originated.
Shipments weighing under 125 pounds:
-----------------------------------
Use RPS. Call (800) 762-3725 for instructions or supplies
17
<PAGE>
Shipments weighing between 125 pounds and 4,999 pounds and occupying less
-------------------------------------------------------------------------
than 1/3 of a 48 foot trailer:
-----------------------------
Use the carrier shown in the chart following this section.
Shipments weighing between 5,000 pounds or more and/or occupying more than
--------------------------------------------------------------------------
1/3 of a 48 foot trailer:
------------------------
Call the Traffic Coordinator at (717) 633-3276 to schedule merchandise
pickup.
Items not complying with the requirements contained in this Exhibit may be
prepped or re-worked by Keystone at the expense of Fogdog at the sole
discretion of Keystone.
18
<PAGE>
Shipments weighing between 125 pounds and 4,999 pounds and occupying less
-------------------------------------------------------------------------
than 1/3 of a 48 foot trailer should be shipped by the carrier shown for
------------------------------------------------------------------------
the origin state in this table:
------------------------------
State Carrier
- ----- -------
AL Roadway NM Roadway
AR Roadway NV Roadway
AZ Roadway NY Overnite
CA Roadway OH Roadway
CO Roadway OR Roadway
CT Overnite PA Overnite
DC Overnite RI Overnite
DE Overnite SC Overnite
FL Roadway SD Roadway
GA Roadway TN Roadway
IA Roadway TX Roadway
ID Roadway UT Roadway
IL Roadway VA Overnite
IN Roadway VT Roadway
KS Roadway WA Roadway
KY Roadway WI Roadway
LA Roadway WV Overnite
MA Overnite WY Roadway
MD Overnite
ME Overnite
MI Roadway
MN Roadway
MO Roadway
MS Roadway
MT Roadway
NC Overnite
ND Roadway
NE Roadway
NH Overnite
NJ Overnite
19
<PAGE>
Exhibit C
Keystone Services, Performance Standards, and Statement of Work
OVERALL SCOPE
Fogdog will receive orders via the Internet. Fogdog will authorize credit
cards and transmit orders to Keystone Fulfillment, Inc. (KFI). KFI will
pick, pack and ship the orders. KFI will prepare and send to Fogdog a file
for shipped orders, including delivery-tracking information. Fogdog will
bill the credit cards and resolve declines and charge backs from the bank.
KFI will transmit the inventory snapshot and inventory transaction files to
Fogdog at least once per day.
Fogdog will transmit to KFI item numbers, purchase orders and vendor
information. KFI will update Fogdog with an order status file at least
twice per work day (actual frequency to be agreed upon by KFI and Fogdog).
Interfaces and System Setup
Work will begin on September 15, 1999 to develop system interfaces and
setup an account on the KFI system. Programming will be performed by
Fogdog so files sent to KFI comply with the formats contained in Exhibit G
of this agreement for purchase order, item, vendor and order files. KFI
will perform programming so files sent to Fogdog meet the formats contained
in Exhibit G of this agreement for order status and inventory status.
Shipment of products to Fogdog customers will begin no later than October
11, 1999.
Information Set Up
Fogdog will transfer to KFI item, purchase order, and vendor files.
Forecasting
Fogdog will make every attempt to provide a daily forecast for receipts,
shipments, gift box units and gift wrapping units, within [*] of actual
numbers in order for KFI to meet standards. Fogdog will have this forecast
to KFI by 5 PM Eastern Standard Time on each Monday for the week beginning
three weeks later. If actuals fall outside of the [*] KFI will not be
bound to the performance standards contained in this agreement but will do
everything within reason to meet these standards.
If actuals are over [*] of the forecast, the account executive will call
for an operational overview with both KFI and Fogdog representatives. The
purpose of this overview will be to determine the best short-term
operational plan to work out of the backlog situation.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
20
<PAGE>
If actuals fall below [*] of the forecast, Fogdog will pay KFI the
equivalent of the charge for receiving, shipping, gift boxing, and gift
wrapping, [*] of the forecasted orders or units respectively.
Merchandise Receipt
Fogdog's vendors will follow vendor compliance guidelines contained in this
Agreement, including providing KFI with advance shipping notification. KFI
will receive and enter into inventory all items meeting purchase order
requirements and not requiring prep within one business day. KFI will
provide a 10% basic inspection at the piece level for product
identification and count verification.
Receipts requiring sortation into one sku per carton, will be available for
sale 2 business days after arrival at KFI's facility. Multi-sku receipts
with inner packs that will withstand the rigors of material handling within
the warehouse will be available for sale one business day after arrival at
KFI's facility.
For item(s) not meeting purchase order requirements, a problem order manual
log will be generated and contact made to Fogdog to resolve incoming
problems within one business day.
At Fogdog's request, KFI will provide kitting services.
Quality Inspection
Any merchandise requiring additional quality control and/or prep work must
be approved by Fogdog in advance of work performed.
Merchandise Storage
Fogdog's inventory will be stored solely in KFI's Kindig Lane facility,
unless Fogdog authorizes Keystone in writing to store Fogdog's inventory
off-site, and will be segregated from other active and reserve Keystone
inventory.
Merchandise will be stored in a clean, climate controlled space that offers
reasonable protection from temperature and water damage and includes
functioning sprinklers. In addition, for items identified by Fogdog as
"high value", a secure storage area with limited access will be used.
Order Origination
Customers will place orders through the Internet. The inventory snapshot
and transaction files will be transmitted once per day by KFI to Fogdog and
will be used to calculate availability at the time of order. Fogdog will
authorize the order, check for frauds, and create a file with the
customer's name, address, product number, and quantity. KFI will initiate
a file transfer to its system at least twice per work day (actual frequency
to be agreed upon by KFI and Fogdog)
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
21
<PAGE>
KFI will, at a frequency to be agreed upon by KFI and Fogdog, but not less
than twice each work day, transmit files to Fogdog to update inventory and
order status information, including cancellations.
COLLATE PRINTING, PICKING, PACKING, AND SHIPPING
Regular Orders
All items available for picking (excluding back orders) are released on a
collate to the distribution center for shipping at the conclusion of the
order run. [*] of all in stock, non-damaged non-problem orders transmitted
to KFI prior to the midday order processing run, up to [*] of the Fogdog
forecast mentioned above, will be shipped on the same day. If less than
[*] of all in stock, non-damaged, non-problem orders transmitted to KFI
prior to the midday order processing run, up to [*] of the Fogdog forecast
mentioned above, are not shipped the same day, KFI will upgrade its
shipping services, and bear the costs of such upgrades, to bring the orders
up to the [*] level as follows: 1) UPS Ground to UPS 3-day select; 2) UPS
3-day select to UPS 2nd day air; 3) UPS 2nd day air to UPS next day air; 4)
USPS parcel post to USPS Priority Mail; 5) USPS Priority Mail to USPS
Express Mail Service. 100% of the orders carried over will be shipped by
the end of the next business day. (During high volume periods, as
determined by Keystone in its sole discretion, Keystone will use reasonable
efforts to implement weekend and evening schedules to maintain this
standard.)
QUALITY ASSURANCE
On a weekly basis, outbound order accuracy and order presentation will be
at minimum [*].
If outbound order accuracy is at or above [*] at the order level for a
given week, Fogdog and KFI will share equally the cost of return postage
and shipping charges for replacement items required to correct the outbound
order accuracy errors. If outbound order accuracy is below [*], the
parties shall share equally the cost of return postage and shipping charges
for replacement items required to correct the first [*] and thereafter KFI
will bear the entire cost of return postage and shipping charges for
replacement items required to correct the outbound order accuracy errors.
Outbound order accuracy is measured by the following criteria: (1) correct
item(s) in the package; (2) presence of gift boxing and/or gift wrapping
per Fogdog instructions; and (3) sufficient dunnage to protect item(s)
during shipping. Order presentation is defined as correct inserts,
labeling and/or other package appearance work per Fogdog instructions.
Distribution
Distribution will receive the collates (packing slips) at the conclusion of
each order run. KFI will pick, pack and ship the order, using a label
bearing Fogdog's name and logo as specified by Fogdog, together with the
return address specified by Fogdog. Products will
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
22
<PAGE>
be shipped using Fogdog's designated carrier(s). Orders shipped via UPS
will ship under a Fogdog designated UPS Shipper Number and account. The
completed shipment record and tracking information will be transmitted to
Fogdog via the order status file. Fogdog will bill the customer and credit
Fogdog's bank account.
Credit Card Processing and Charge Backs
After the order is shipped, KFI will send the shipment confirmation file to
Fogdog. Fogdog will process the billing of the credit cards.
Returns
Customer returns, including credit card credits, will be processed by
Fogdog at its facility. Items to be returned to inventory will be sent by
Fogdog to KFI and processed as new receipts.
Order Cancellations
Fogdog will cancel orders in its system if the file has not been
transferred to KFI. Once orders have been transferred to KFI, orders can
be canceled before they are released to the Distribution Center. If orders
have progressed beyond the cancellation point, Fogdog can contact the
account executive and reasonable efforts will be made by KFI to manually
track down the orders in the warehouse. KFI will notify Fogdog whether or
not KFI was able to locate and cancel the orders.
Inventory Shrinkage
KFI will be responsible for inventory accuracy at these levels:
. [*] in aggregate as determined by physical inventory
. [*] in aggregate on 12 week cycle counts after adjustments made for
active recounts
If there is shrinkage above these levels, KFI will pay the cost to replace
those goods.
Priority Order Processing
All priority orders, up to a maximum of [*] per day, received by KFI prior
to 3:00 p.m. Eastern Standard Time will be shipped that same day.
Reports
The reports referred to in Exhibit E of this agreement will be available to
Fogdog at daily, weekly and/or monthly frequencies as requested in writing
by Fogdog.
Inventory
KFI will conduct cycle counting of the reserve storage for a complete
turnover every 12 weeks. An annual physical inventory is also available
with two months' written notice.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
23
<PAGE>
Return to Vendor and other Inventory Handling
KFI will destock and return to Fogdog, its vendor(s) or other Fogdog
designated parties, as the case may be, any rejected or overstock Fogdog
Merchandise at Fogdog's discretion and at Fogdog's expense.
Keystone Inserts
KFI will not include any inserts relating to KFI in any order without the
prior written consent of Fogdog.
Certain Definitions: "Business day," for all purposes of Keystone
Standards and the Direct Marketing Services Agreement to which this is
attached, shall mean Monday through Friday except any day that is a United
States national holiday.
24
<PAGE>
Exhibit D
Keystone Account Executive Job Description
Reports To: Vice President Operations of Keystone
SUMMARY
Provides and leverages service to Fogdog for the purpose of meeting
contractual obligations and generating additional business by performing
the following duties.
ESSENTIAL DUTIES AND RESPONSIBILITIES include the following. Other duties
may be assigned.
. Develops strong working relationships with companies doing business with
Fogdog.
. Provides required reports for Fogdog as specified in this Agreement.
. Works with companies doing business with Fogdog to identify and
communicate marketing projections related to orders, receipts, returns
or other data that will affect service levels to customer service and
fulfillment management teams.
. Monitors and communicates attainment of contractual performance
standards to Fogdog's customer service and fulfillment operations,
making recommendations for improvements as necessary.
. Provides Fogdog with information and advice on the best methods to use
to improve throughput and cost.
. Works with all operating divisions to set up new Fogdog accounts.
. Schedules meetings and tours for companies doing or potentially doing
business with Fogdog.
. Conducts off-line or on-line research to resolve customer problems.
. Assures compliance with pertinent laws and regulations.
. Position will require hours outside of normal schedule and may involve
periodic overnight travel.
. Insures that staff has required resources and equipment to perform their
duties.
SUPERVISORY RESPONSIBILITIES: The Account Executive will directly
supervise 1 to 2 Assistant Account Executives. The Account Executive will
carry out supervisory responsibilities in accordance with Keystone's
policies and applicable laws.
25
<PAGE>
Responsibilities include interviewing, hiring, and training employees;
planning, assigning and directing work; appraising performance; rewarding
and disciplining employees; addressing complaints and resolving problems.
QUALIFICATIONS: To perform this job successfully, the Account Executive
must be able to perform each essential duty satisfactorily. The
requirements listed below are representative of the knowledge, skill,
and/or ability required. Reasonable accommodations may be made to enable
individuals with disabilities to perform the essential functions.
EDUCATION and/or EXPERIENCE: Associate's Degree (A.A.) or equivalent from
two-year college or technical school; or six months to one year related
experience and/or training; or equivalent combination of education and
experience.
LANGUAGE SKILLS: Ability to read, analyze, and interpret general business
periodicals, professional journals, technical procedures, or governmental
regulations. Ability to write reports, business correspondence and
procedure manuals. Ability to effectively present information and respond
to questions from groups of managers, Fogdog representatives, customers,
and the general public.
MATHEMATICAL SKILLS: Ability to add, subtract, multiply, and divide in all
units of measure, using whole numbers, common fractions, and decimals.
Ability to compute rate, ratio, and percentages and to draw and interpret
bar graphs.
REASONING ABILITY: Ability to define problems, collect data, establish
facts, and draw valid conclusions. Ability to interpret an extensive
variety of technical instructions in mathematical or diagram form and deal
with several abstract and concrete variables. Ability to manage multiple
projects and priorities.
COMPUTER KNOWLEDGE: Experience with Microsoft Office Suite products
including Word, Exchange and Excel. Ability to create business
correspondence in Word and Exchange. Ability to create spreadsheets in
Excel using simple calculations and equations. Knowledge of PowerPoint is
a plus. Experience in MACS, Lawson, PowerPoint or other software common to
Keystone/Hanover Direct is a plus.
PHYSICAL DEMANDS: The physical demands described here are representative
of those that must be met by the Account Executive to successfully perform
the essential functions of this job. Reasonable accommodations may be made
to enable individuals with disabilities to perform the essential functions.
While performing the duties of this job, the Account Executive is regularly
required to sit and talk and/or listen. The Account Executive frequently
is required to stand; use hands to finger, handle, or feel; and reach with
hands and arms. The Account Executive is occasionally required to walk and
stoop, kneel, crouch or crawl. The Account Executive must occasionally
lift and/or move up to 25 pounds.
26
<PAGE>
Exhibit E
Standard System Reporting Listing
Actual Offer Page Analysis
--------------------------
Daily Demand
------------
Daily Return
------------
Inventory Value Report
----------------------
Items by Location
-----------------
Key History Analysis
--------------------
Key History II
--------------
Order Fill Rate Analysis
------------------------
Out of Stock Report
-------------------
Product Forecast Report
-----------------------
Product Return By Date Range
----------------------------
Product Sales By Source
-----------------------
Purchase Order Analysis
-----------------------
Receiving Recap
---------------
Sales By How Paid Date
----------------------
Shipped Sales By Catalog
------------------------
Shipped Sales By Division
-------------------------
Summary Backorder Report
------------------------
Ticket Receiving
----------------
Where It Is
------------
27
<PAGE>
Exhibit F
1994 Q4 and Year 2000 Order Volume and SKU Projections
The following information reflects Fogdog's projected SKU and order volumes for
product fulfilled through Keystone.
SKU and order information for October 1999 through December 1999:
- ----------------------------------------------------------------
Average daily orders: [*] by December 1999
Peak daily orders: [*] (first week of December)
SKU's: [*] (Approximate breakdown: 30% apparel, 30% footwear, 30% large
hardgoods, and 10% small accessories)
SKU and order information for the year 2000:
Annual order volume: [*]
SKU's : growing to [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
28
<PAGE>
EXHIBIT 10.14
September 17, 1999
Tim Harrington
Fogdog, Inc.
500 Broadway
Redwood City, California 94063
Re: Term Sheet
--- ----------
Dear Tim:
The attached Term Sheet memorialize the principal terms and conditions of
a series of transactions in which (i) NIKE USA, Inc., an Oregon corporation
("NIKE USA") will open Fogdog, Inc., a California corporation ("Fogdog"), as a
NIKE USA retail account; (ii) Bauer NIKE Hockey USA, Inc., a Vermont
corporation ("BNH-USA") will open Fogdog as a BNH-USA retail account; (iii) NIKE
Team Sports, Inc., a California corporation ("NTS"), will open Fogdog as an NTS
retail account; (iv) NIKE.com, a division of NIKE Retail Services, Inc., an
Oregon corporation ("NIKE.com"), will agree to sell to Fogdog, out of NIKE.com's
inventory of available products, products necessary to fill retail orders
received by Fogdog; (v) Fogdog will issue to NIKE USA a warrant to purchase
6,171,524 shares of Fogdog's Series C Preferred Stock; and (vi) NIKE USA, Fogdog
and Fogdog's principal investors will agree on certain rights and restrictions
applicable to NIKE USA's equity investment in Fogdog.
By executing this letter, each of the undersigned acknowledges and agrees
that the attached Term Sheet constitutes the binding agreement of such party
with respect to the transactions described above and that NIKE USA's equity
investment shall occur pursuant to such agreement. Each of the parties further
acknowledges and agrees that the parties contemplate replacing this "short-form"
agreement with a series of additional definitive long-form agreements as soon as
practicable. Notwithstanding the foregoing, until such time as such definitive
long-form agreements are entered into between the parties, the attached Term
Sheet shall continue to constitute the binding agreement of the parties.
Each party will be responsible for its own fees and costs in negotiating
and entering into this transaction. If you agree to the terms set forth in the
attached Term Sheet, please sign a copy of this letter in the space indicated
below and return it to me. We can then have our attorneys prepare drafts of the
definitive long form agreements.
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Sincerely,
NIKE USA, INC.
By: /s/ Philip H. Knight
________________________
Philip H. Knight, CEO
The undersigned parties agree with the terms and conditions set forth above and
on the attached Term Sheet:
FOGDOG, INC.
By: /s/ Tim Harrington
_______________________
Tim Harrington, CEO
BAUER NIKE HOCKEY USA, INC.
By: /s/ Philip H. Knight
___________________________________
Philip H. Knight, Attorney-in-Fact
NIKE TEAM SPORTS, INC.
By: /s/ Philip H. Knight
___________________________________
Philip H. Knight, CEO
NIKE RETAIL SERVICES, INC.
By: /s/ Philip H. Knight
___________________________________
Philip H. Knight, CEO
<PAGE>
FOGDOG PREFERRED STOCKHOLDERS:
VENROCK ASSOCIATES II, L.P.
By: [signature illegible]
________________________________
Name:
Title: General Partner
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: [signature illegible]
________________________________
Name:
Title:
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III,
L.L.C.
Its General Partner
By: /s/ Michael Brooks
_________________________________
Michael Brooks
Managing Member
SPROUT CAPITAL VIII, L.P.
By: DLJ Capital Corp.
Its: Managing General Partner
/s/ Alexander Rosen
____________________________________
By: Alexander Rosen
Its: Attorney In Fact
<PAGE>
FOGDOG COMMON STOCKHOLDERS:
BRETT M. ALLSOP AND AMY K.
ALLSOP, TRUSTEES OF THE BRETT
AND AMY ALLSOP FAMILY 1999 TRUST.
By: /s/ Brett M. Allsop
_______________________________
Name: Brett M. Allsop
Title: Trustee
By: /s/ Amy K. Allsop
_______________________________
Name: Amy K. Allsop
Title: Trustee
ROBERT S. CHEA
/s/ Robert S. Chea
__________________________________
ANDREW Y. CHEN
/s/ Andrew Y. Chen
__________________________________
<PAGE>
TERM SHEET
1. Agreement by NIKE USA to open Fogdog, Inc. as a NIKE USA Retail Account.
-----------------------------------------------------------------------
1.1 Account Application. NIKE USA and Fogdog agree, which agreement shall
-------------------
be memorialized in greater detail pursuant to an Account Application and
Agreement on NIKE USA's standard form (the "Account Application"), that NIKE USA
will open Fogdog as a NIKE USA retail account. The Account Application will
govern all purchases and sales of NIKE products from NIKE USA, except to the
extent the Account Application is amended by the Web Sales Agreement referred to
in Section 1.2 of this Term Sheet. The Account Application shall indicate that
Fogdog is authorized to sell NIKE products only through Fogdog's retail web site
(i.e., Fogdog.com) and other sites described in Section 1.2.2 of this Term
Sheet, and only to consumers with shipping addresses in the United States or
U.S. military installations where NIKE USA sells products (including APO/FPO).
Any sales by Fogdog from any other physical location or web site or any direct
or indirect sales or transshipments to another retailer, distributor or broker
is strictly forbidden by the Account Application and shall be considered a
material breach. Fogdog shall be authorized in the Account Application to
purchase the full line of generally available NIKE products, including footwear,
apparel, equipment, accessories, ACG, Brand Jordan, golf, specialty categories,
etc.
1.2 Web Sales Agreement. NIKE USA and Fogdog agree, which agreement shall
-------------------
be memorialized in greater detail pursuant to a Web Sales Agreement (the "Web
Sales Agreement"), to the following terms and conditions:
1.2.1 Relationship to Account Application and Other Documents
-------------------------------------------------------
. In the event of any direct conflict or inconsistency between the
Account Application and the Web Sales Agreement, the Web Sales
Agreement will govern.
1.2.2 Grant of Right
--------------
. During the term of the Web Sales Agreement, as determined in
accordance with Section 1.2.16 of this Term Sheet, Fogdog will have
the right to market and sell NIKE USA products only on Fogdog.com, or
other web sites that are (i) hosted on file servers owned or leased
and operated by Fogdog and (ii)
---
operated under Fogdog's trademarks and trade name, whether or not "co-
branded" with the trademarks or trade names of other entities, and are
not (iii) "co-branded" with the trademarks or trade names of
-----------
manufacturers of sports and fitness or "athleisure" products,
retailers who derive a substantial portion of their revenues from the
sale of such
<PAGE>
products, or any other entity who holds itself out as such a
manufacturer or retailer or is perceived by a significant portion of
the public to be such a manufacturer or retailer. Notwithstanding the
foregoing, Fogdog shall retain the right to purchase banner
advertising on World Wide Web Portals and other URLs that link to
Fogdog.com.
. Fogdog's rights and duties shall not be assigned or delegated or
transferred by operation of law without NIKE USA's prior written
consent, which may be granted or withheld at NIKE USA's sole
discretion; provided, however, that NIKE USA will not unreasonably
withhold its consent to an assignment of rights and delegation of
duties to a wholly owned subsidiary of Fogdog that may be incorporated
to operate a Fogdog web site of the type described in this Section
1.2.2; and provided further that NIKE USA hereby consents to the
proposed re-incorporation of Fogdog in Delaware, as long as the
successor corporation succeeds to all of the rights and obligations of
Fogdog hereunder.
. Fogdog does not have the right to sell product purchased from NIKE for
the account of third parties.
. Fogdog is prohibited from selling products to consumers with shipping
addresses outside of the United States, except consumers at U.S.
military installations where NIKE USA sells products (including
APO/FPO). NIKE USA agrees to consider amending the Account Application
and Web Sales Agreement to permit sales to parties outside of the
United States, but any such expansion shall be at NIKE USA's sole
discretion based on all relevant factors, including but not limited to
applicable regulatory requirements, NIKE USA's obligations to third
parties, consistency with NIKE USA affiliates' practices and policies
in international markets, and the potential for disruption of
relationships with existing customers of NIKE USA's affiliates.
Notwithstanding the foregoing, NIKE USA agrees to amend the Account
Application and Web Sales Agreement to permit sales to consumers
outside of the United States in any country in which NIKE.com is
allowed to sell, except to the extent such sales would cause or
constitute a violation of any agreement with a third party. To the
extent sales outside the United States would require the approval of
any NIKE USA affiliate, NIKE USA shall be obligated to secure such
approval on terms and conditions no less favorable to Fogdog than the
terms and conditions set forth in this Term Sheet, the Account
Application and the Web Sales Agreement.
<PAGE>
1.2.3 Exclusivity
-----------
. Fogdog agrees to use NIKE USA and its affiliates as the exclusive
suppliers of NIKE brand products to Fogdog.
. For a period commencing on the date hereof and ending on [*], NIKE USA
shall not open, and shall prevent its affiliates from opening, any
"new internet-only account," which shall be defined as any retailer
that sells only on the World Wide Web and does not fall within one of
the following exceptions: (i) any entity which is an affiliate, as
defined in Section 7.1 of this Term Sheet, of a current or future NIKE
USA account that derives the majority of its revenue from traditional
"brick and mortar" retail stores (for example, a special purpose web
operating subsidiary of an existing NIKE customer); or (ii) any entity
which serves as the e-commerce or web sales outsourcing provider for a
current or future NIKE USA account that derives the majority of its
revenue from traditional "brick and mortar" retail stores. In
addition, for a period commencing on the date hereof and ending on
[*] NIKE USA shall not invest, and shall prevent its affiliates from
investing, in the securities of any entity of the type described in
exception (ii) of the preceding sentence. The foregoing exceptions are
intended to ensure that NIKE USA does not have an obligation to Fogdog
to restrict the opportunities of its core customer base to sell NIKE
products over the World Wide Web (any such restrictions shall be made
unilaterally by NIKE USA after considering all relevant business and
legal considerations). NIKE acknowledges that the foregoing exception
for affiliates of current or future NIKE USA accounts is not intended
to cover "spinoffs" whose outstanding securities are publicly traded
or owned by venture capital firms or other financial investors. Sales
by NIKE USA or its affiliates to such spinoffs on or before [*] would
constitute a breach of this Term Sheet and the definitive Web Sales
Agreement.
. Fogdog acknowledges that NIKE USA's affiliate, NIKE.com, will continue
to buy goods from NIKE USA for sale on the World Wide Web, and that
nothing in the Web Sales Agreement or the definitive agreements limits
the ability of any NIKE USA affiliate (or any NIKE USA account with a
web sales presence) to sell on the web in direct competition with
Fogdog.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
. Fogdog may sell its securities to competitors of NIKE USA; provided
that any such sale of securities representing a [*] [*] [*] and have
the consequences described in Section 1.2. 16.
1.2.4 Ownership and use of the NIKE Trademarks
----------------------------------------
. Nothing in this agreement or any other agreement between the parties
does or will affect NIKE's ownership of the NIKE trademarks.
Similarly, nothing in this agreement or any other agreement between
the parties does or will affect Fogdog's ownership of the Fogdog
trademarks. NIKE USA acknowledges that by opening Fogdog as a NIKE USA
account NIKE USA is granting Fogdog an implied license to advertise
NIKE products subject to the provisions of this Term Sheet and the
definitive agreements.
1.2.5 Pricing
-------
. Based on consideration of the projected volumes of Fogdog's purchases,
Fogdog's willingness to bear a portion of NIKE's costs of rapidly
making product available to Fogdog for the Holiday '99 season, and
other cost-related considerations unique to the e-commerce
environment, NIKE USA will extend to Fogdog pricing terms in
accordance with the strategic discount package described below in this
Section 1.2.5. As indicated below, Fogdog will also be eligible to
participate in all of the programs associated with similarly situated
retailers (Co-op, [*], etc) on a negotiated basis.
[*] Fogdog acknowledges that Nike USA's pricing policies are currently
under review and that the foregoing discount range may change as new
policies are implemented. [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2.6 Co-op [*]
---------
. Purchase of NIKE USA products will result in Co-op accruals of [*]
Co-op funds available in Fogdog's co-op account may be used by Fogdog
in accordance with the rules generally applicable to NIKE USA's co-op
program.
[*] will be available in amounts ranging from [*] of sales to Fogdog,
the precise percentage to be determined by NIKE [*] in accordance with
the criteria usually applied in administering its [*] budget.
1.2.7 Special Make-Ups
----------------
. Special make-ups are defined as footwear styles (combinations of
materials, colors, features, etc.) which are developed by NIKE USA and
its affiliates for sale to a single retailer. Special make-ups may
share features, colors, etc. with products generally available in
NIKE's line of products, or special make-ups for other customers, but
they are different enough to be objectively perceived as unique by the
average footwear consumer.
. Fogdog has the right to receive exclusive special make-ups provided
Fogdog meets the order eligibility criteria usually applied by NIKE
USA for such products. Such criteria include, for example, the nature
of the special make-up (e.g., unique color combination vs. unique
outsole with special tooling requirements), production capacity, order
volumes, etc.
. Fogdog acknowledges that NIKE may engage in special make-up projects
with various retailers who order extraordinary volumes, are willing to
fund development costs, or are otherwise willing to contribute to
NIKE's product creation process. These projects may result in features
or technologies that are not eligible for incorporation into special
make-ups that Fogdog may desire to order. One example is tuned air
technology.
1.2.8 Early Releases
--------------
. Early releases are defined as products intended to be included in NIKE
USA's generally available line of products but which are released to a
select retailer or group of retailers at least [*] prior to general
availability.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
. Under present NIKE USA assumptions and operating procedures, Fogdog is
eligible to receive, on a non-exclusive basis, [*] NIKE reserves the
right to consider such factors as category emphasis in determining
which early releases will be available to Fogdog.
1.2.9 Special Promotional Programs.
----------------------------
. Fogdog is allowed to purchase substantially all products available to
NIKE.com in connection with NIKE.com's special promotional programs.
Examples include special limited edition letterman's jackets, golf
gift packs, etc. This does not include special make-ups or early
releases or products that are made to order by NIKE USA for NIKE.com's
customers.
1.2.10 Assistance with Web Site [*]
----------------------------
. Without cost to Fogdog (except as reflected in Section 4.5), NIKE USA
will provide as much assistance as possible, given NIKE's internal
resource constraints and obligations to third parties, to provide
[*] to Fogdog, including product and other images, the provision of
samples for image development, etc.
. Without cost to Fogdog (except as reflected in Section 4.5), NIKE USA
will allow Fogdog to use NIKE's conversion charts for footwear sizing
and the NIKE apparel sizing program as such charts are released within
the NIKE USA organization.
. NIKE USA shall own all right, title and interest in and to any content
provided or created by NIKE USA, but Fogdog will have a license to use
such content on Fogdog.com in connection with the marketing and sale
of NIKE brand products.
1.2.11 Specialty Footwear
------------------
. Fogdog has the right to return for a full price refund (i.e., NIKE
USA's list price less the discount applicable to Fogdog),[*] of the
aggregate purchase price in any selling season of product in NIKE's
"specialty footwear" categories (the precise percentage [*] [*] to be
determined by Fogdog in its sole discretion). Any such returns must be
received by NIKE USA [*] after the date of receipt by Fogdog.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2.12 Dedicated Sales and Service Team.
--------------------------------
. Without cost to Fogdog (except as reflected in Section 4.5), Fogdog
will initially have priority access to a team of 3-5 individuals
including a strategic account manager, customer service
representative, footwear account executive and apparel/equipment
account executive. As Fogdog's volumes grow, these will become
dedicated resources (again, at no additional cost to Fogdog) if
necessary to ensure that Fogdog receives excellent service.
. Within 72 hours after execution of this Term Sheet by Fogdog, this
team will commence showing NIKE USA's product line to Fogdog, working
with Fogdog on a merchandizing and order strategy, and doing
everything reasonably possible to obtain an agreed upon selection of
available NIKE products for the Holiday '99 season.
. Without cost to Fogdog (except as reflected in Section 4.5), NIKE
USA's "EKINs" will be available to Fogdog on a priority basis to train
Fogdog's customer service and site content people regarding the
technical and performance aspects of NIKE products.
1.2.13 [*]
. Fogdog will use its best efforts, consistent with its privacy
obligations to its customers, to provide NIKE USA with [*] provided
that any such information must be reasonably material in terms of the
uses permitted by the last paragraph of this Section 1.2.13.
. Fogdog will use its best efforts and act as soon as reasonably
possible to amend its privacy policy to include a feature where
prospective customers have the opportunity to electronically "opt-in"
to have their information provided to NIKE USA and its affiliates.
. Fogdog will act as soon as reasonably possible to ask its existing
customers who have engaged in past transactions with Fogdog or
registered with Fogdog whether they would consent to the provision of
their customer and transaction information to NIKE USA and its
affiliates. This could be in connection
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
with an announcement of the new relationship between NIKE and Fogdog.
. NIKE USA shall not, and shall not allow its affiliates to, directly or
indirectly use Fogdog's customer data to solicit Fogdog's customers
(for example, by advertising the availability of product on NIKE.com
or at another retailer's store or web site), but may use such data for
brand enhancement purposes (for example, announcing appearances by
NIKE-affiliated athletes or providing information about NIKE sponsored
events, provided that such brand enhancing activities do not direct
potential purchasers to a named retailer or retail location).
1.2.14 Approval of Advertising and Advertising on Fogdog.com.
-----------------------------------------------------
. NIKE USA will have the right of reasonable prior approval of marketing
efforts, including advertising and web site design, that involves
display of the NIKE marks or assets generally associated with the
brand (e.g., use of athletes associated with NIKE). Such right of
reasonable prior approval shall not require Fogdog to submit marketing
proposals, designs or concepts that are substantially similar to
proposals, designs or concepts that have been previously approved. All
advertising involving athlete images must be submitted for approval at
least 10 days prior to use, and NIKE USA reserves the right to delay
or prohibit Fogdog's use of such images to the extent necessary to
fulfill NIKE USA's contractual obligations to third parties.
. Fogdog will comply with all trademark usage guidelines promulgated by
NIKE from time to time.
. Fogdog will use commercially reasonably efforts to advertise the
availability of closeout or reduced price inventory at an auction page
or other location within Fogdog's web site that is separate from the
location of Fogdog's other advertising for NIKE products.
. In the event Fogdog grants the right to third parties to advertise
(whether through banner advertising or otherwise) on Fogdog.com, NIKE
shall be afforded [*] of or advertiser on Fogdog.com.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
1.2.15 Confidentiality/Publicity
-------------------------
. Unless otherwise mutually agreed upon by the parties as to the timing
and content of any public announcement or press release, each of the
parties agrees to keep the terms of this Term Sheet and the definitive
agreements and all other information exchanged by the parties
confidential, subject to the usual exceptions for disclosures required
by statute, rule or regulation or other applicable law (for example,
the federal and state securities laws). NIKE acknowledges that Fogdog
will be required by applicable law to disclose the terms of this Term
Sheet and, if applicable, the definitive agreements, to potential
investors in connection with Fogdog's contemplated private placement
of Series D Preferred Stock. Fogdog agrees to make such disclosures
only to individuals who agree to keep such information confidential in
accordance with NIKE USA's standard form of Confidentiality Agreement.
. Fogdog will apply to the S.E.C. for and use its best efforts to obtain
confidential treatment for the terms of this Term Sheet and the
agreements embodied herein and the definitive agreements on the
grounds that they contain confidential pricing information. NIKE USA
will identify in writing prior to the initial filing of Fogdog's
preliminary registration statement on Form S-1 all of the terms that
NIKE USA believes should be covered by the request for confidential
treatment.
1.2.16 Term and Termination
--------------------
. The Web Sales Agreement will have an initial term that will commence
on the date hereof and end on [*].
. On or after the end of the initial term, if Fogdog's aggregate actual
purchases of NIKE products from [*] do not exceed [*] of Fogdog's
aggregate projections for the [*] quarter comparison period, NIKE may
at any time terminate the Web Sales Agreement. NIKE USA will give
notice of its election to terminate at least 60 days before the
termination date. In such event, NIKE would honor reasonable orders
received prior to such election. Fogdog's purchase projections, which
the parties acknowledge are aspirational and are to be used solely for
purposes of the termination provision, are as follows:
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]
. At the end of the initial term, if Fogdog's aggregate actual purchases
of NIKE products from calendar [*] do exceed [*] of Fogdog's aggregate
projections for the [*] quarter comparison period, NIKE will not have
the right to terminate the Web Sales Agreement and the term shall
extend for an additional two year extension term ending 12/31/03.
. On or after the end of the two year renewal term, if Fogdog's
aggregate actual purchases of NIKE products from calendar [*] do not
exceed [*] of Fogdog's aggregate projections for the [*] quarter
comparison period, NIKE may at any time terminate the Web Sales
Agreement. NIKE USA will give notice of its election to terminate at
least 60 days before the termination date. In such event, NIKE would
honor reasonable orders received prior to such election. Fogdog's
purchase projections, which the parties acknowledge are aspirational
and are to be used solely for purposes of the termination provision,
are as follows:
[*]
. At the end of the two year renewal term, if Fogdog's aggregate actual
purchases of NIKE products from calendar [*] do
exceed [*] of Fogdog's aggregate projections for the [*] quarter
comparison period, and if it is reasonable for the parties to project
annual purchases for the next four quarters to exceed [*]
(based on futures orders, etc.), NIKE will not have the right to
terminate the Web Sales Agreement and the term shall extend for an
additional one year renewal term ending 12/31/04.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
. The definitive Web Sales Agreement will contain the usual provisions
for immediate early termination in the event of bankruptcy,
insolvency, etc.
. The definitive Web Sales Agreement will contain provisions for early
termination in the event of material breach by either party and
failure to cure within 30 days. Certain breaches will be defined as
material and incurable and give rise to a right of immediate
termination, including violation of intellectual property rights,
breach of confidentiality, and failure to comply with the express
prohibitions in the Account Application (transshipping, etc.). A sale
of stock representing [*] percent or more of the voting power of
Fogdog's outstanding voting securities or a sale of stock to a
competitor of NIKE USA [*] will be considered to be a material,
incurable breach by Fogdog and give rise to an immediate right of
termination, but shall not result in liability to NIKE USA or any
affiliate for money damages. Subject to the preceding sentence, in the
event of a breach of this agreement either party may seek whatever
remedies are available under applicable law.
. Either party has the right to terminate the Web Sales Agreement
without cause at any time upon 90 days notice to the other; provided
that if NIKE makes such an election without cause before 12/31/01
(i.e., except in accordance with exercise of NIKE USA's non-renewal
option referred to above), it shall pay an early termination fee of
[*] to Fogdog.
. As used in this Term Sheet, the term "cause" shall mean a [*].
. In the event of non-renewal or early termination without cause, NIKE
will honor all orders received prior to delivery of notice of
termination. Termination for cause shall result in cancellation of all
outstanding orders.
. In the event of termination, non-renewal or expiration of the Web
Sales Agreement, either party will have the right to terminate the
Account Application. Similarly, in the event of termination of the
Account Application either party will have the right to terminate the
Web Sales Agreement. Termination
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
of the Account Application by NIKE without cause during the initial
term (i.e., except in accordance with exercise of NIKE USA's non-
renewal option referred to above) will result in an obligation to pay
the [*] referred to above in connection with termination of the Web
Sales Agreement.
. Upon termination each party will return all confidential and/or
proprietary information of the other, including but not limited to
product images, sizing charts, product descriptions, etc.
1.2.17 Other Provisions
----------------
. The definitive Web Sales Agreement will have other provisions
customary in an agreement of this nature.
2. Agreement by BNH-USA to open Fogdog, Inc. as a BNH-USA Retail Account.
---------------------------------------------------------------------
BNH-USA agrees, which agreement shall be memorialized in greater detail
pursuant to an account application agreement and Web Sales Agreement on terms
and conditions substantially equivalent to those set forth above with respect to
NIKE USA, to open Fogdog as an account. BNH-USA purchases shall count in
determining application of the non-renewal option in the NIKE-USA Web Sales
Agreement and vice versa. However, certain of the promises that relate
specifically to NIKE USA's footwear products and sales programs (Coop, MDF,
special make-ups, etc.) may not apply or may apply differently in the context of
BNH-USA's product lines and programs. In such event, Fogdog will be eligible to
participate in all programs available to BNH-USA retailers who are similarly
situated in terms of the [*]. If BNH-USA does not maintain Co-op or MDF programs
that are substantially similar to NIKE USA's programs, Fogdog may elect to have
its purchases of BNH-USA products treated as purchases of NIKE USA products for
purposes of calculating benefits under such programs.
3. Agreement by NTS to open Fogdog, Inc. as an NTS Retail Account.
--------------------------------------------------------------
NTS agrees, which agreement shall be memorialized in greater detail
pursuant to an account application agreement and Web Sales Agreement on terms
and conditions substantially equivalent to those set forth above with respect to
NIKE USA, to open Fogdog as an account. NTS purchases shall count in determining
application of the non-renewal option in the NIKE-USA Web Sales Agreement and
vice versa. However, certain of the promises that relate specifically to NIKE
USA's footwear products and sales programs (Coop, [*], special make-ups, etc.)
may not apply or may apply differently in the context of NTS's product lines and
programs. In such event, Fogdog will be eligible to participate in all programs
available to NTS retailers who are similarly situated in terms of the [*]. If
NTS does not maintain Co-op or MDF programs that are substantially similar to
NIKE USA's programs, Fogdog may
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
elect to have its purchases of NTS products treated as purchases of NIKE USA
products for purposes of calculating benefits under such programs.
4. Agreement under which NIKE.com Will Agree to Sell to Fogdog.
-----------------------------------------------------------
NIKE.com agrees to sell to Fogdog products available in NIKE.com's
inventory of products available for retail sale pursuant to the following terms
and conditions:
4.1 During the term of the Web Sales Agreement between NIKE USA and
Fogdog, Fogdog will be entitled to place orders from time to time in its
discretion, but only for product available in NIKE.com's existing inventory, and
only for shipment to retail consumers in the U.S. (or APO/FPO) who placed
corresponding orders with Fogdog. Fogdog will not have access to products that
are made to order by NIKE USA for NIKE.com's customers.
4.2 Coordination Regarding Product Availability.
-------------------------------------------
4.2.1 The parties will work together in good faith to ensure adequate
information flow regarding orders and product availability so that orders placed
by Fogdog's customers are fulfilled promptly.
4.2.2 Fogdog shall have the right to order from NIKE.com up to [*] of
NIKE brand product for a given calendar year, subject to product availability
and NIKE.com's right to reasonably allocate product mix.
4.2.3 Fogdog will not have the right to buy special make-ups or early
releases that NIKE.com receives from NIKE USA unless NIKE.com agrees otherwise.
Subject to availability, Fogdog will be able to order substantially all special
promotional products that NIKE.com receives.
4.3 Pricing.
-------
4.3.1 All products to be purchased by Fogdog shall be discounted to a
price that is equal to the [*] except that in no event will NIKE.com be
obligated to sell a product to Fogdog for less than it paid for that product.
4.3.2 NIKE.com will be entitled to charge Fogdog, [*] associated with
FogDog's orders.
4.4 Assistance with Content; Access to Data; Confidentiality. Assistance
---------------------------------------------------------
with content, access to data, and confidentiality are to be made or given on
terms and conditions that are substantially similar to those outlined above for
NIKE USA.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
4.5 Payments to Defray NIKE.com's Costs. In consideration of the pricing
-----------------------------------
concessions by NIKE.com and NIKE USA, the start-up costs to be incurred by
NIKE.com and NIKE USA in providing content-related assistance, and NIKE.com's
and NIKE USA's start-up systems, communication, transportation and service
costs, Fogdog will make an initial cash payment of [*] to NIKE.com upon
execution of this Agreement and a second payment of [*] upon the earlier of 7
days after the closing of Fogdog's initial public offering ("IPO") or [*]. In
addition, NIKE.com and Fogdog shall negotiate in good faith regarding
compensation to NIKE.com for its ongoing (i.e., post start-up) efforts to assist
Fogdog with image transfers, product training, ordering tasks, and fulfillment
efforts. In no event shall NIKE.com seek to charge Fogdog for assistance that
NIKE.com provides without charge to other accounts.
4.6 Term and Termination. The agreement will commence on the date hereof
--------------------
and will continue until termination of the agreement between NIKE USA and
Fogdog.
4.7 Other Provisions. The definitive agreement will have other provisions
----------------
customary in an agreement of this nature.
5. Agreements Relating to NIKE USA's Purchase of a Warrant for Fogdog
------------------------------------------------------------------
Preferred Stock.
----------------
5.1 Warrant Agreement. NIKE USA and Fogdog agree, which agreement shall
------------------
be memorialized in greater detail pursuant to a definitive Warrant Agreement,
that NIKE USA will purchase a warrant to purchase shares of Fogdog's Series C
Preferred Stock. This agreement is on the following terms and conditions:
5.1.1 Price of Warrant
----------------
. NIKE USA will pay $1.00 for the warrant.
5.1.2 Reps and Warranties
-------------------
. The definitive Warrant Agreement will include customary issuer
representations and warranties (e.g., the warrant is duly
authorized and validly issued; the preferred stock issuable upon
exercise has been reserved and will, upon issuance and payment,
be duly exercised and validly issued; etc.) and standard investor
representations and warranties of NIKE USA.
5.1.3 Right of Participation.
----------------------
. NIKE USA will be offered the opportunity to maintain its
ownership interest in Fogdog on all subsequent preferred stock
financing rounds prior to Fogdog's IPO, except the contemplated
offering of Fogdog's Series D Preferred Stock.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
5.1.4 Right of First Refusal
----------------------
. Prior to the IPO, Fogdog will have a right of first refusal on
transfer of Fogdog securities by NIKE USA to any third party except an
affiliate of NIKE USA.
5.1.5 Market Standoff Provision
-------------------------
. NIKE USA agrees to a market stand off as to sales of Fogdog securities
owned by NIKE USA for a three-year period following the IPO. NIKE
USA's shares shall be released from the standoff obligation over the
three year period as follows: [*] of the shares shall be released
from the restriction on the first anniversary date of the IPO; [*] of
the shares shall be released from the restriction on the second
anniversary date of the IPO; and the remaining [*] of the shares
shall be released from the restriction on the third anniversary date
of the IPO. NIKE will sign Credit Suisse First Boston's form of lockup
agreement. NIKE USA's standoff obligation will terminate in connection
with a sale of all or substantially all of the assets of Fogdog or the
sale by Fogdog's shareholders of interests representing more than [*]
of the total voting power of Fogdog's outstanding voting securities to
one party or one or more related parties (i.e, sales by Fogdog's
shareholders in a public offering will not terminate the standoff
obligation).
5.1.6 Standstill Provision
--------------------
. NIKE USA agrees to a standstill prohibiting NIKE USA or any affiliate
after the IPO from purchasing additional shares of Fogdog from any
third party without the prior written consent of Fogdog.
5.1.7 Restriction on Transfer to Competitors
--------------------------------------
. NIKE USA will also agree not to sell its Fogdog securities to a
competitor of Fogdog (which competitors are to be defined in the
definitive agreement), except in connection with a sale of Fogdog
which is approved by the shareholders in accordance with Fogdog's
articles of incorporation. This provision shall not restrict sales to
NIKE affiliates that may compete with Fogdog, or sales in the open
market.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
5.1.8 Access to Financial Information.
-------------------------------
. During the period prior to the IPO, NIKE USA will have access to
Fogdog's financial information and business plans to the same extent
as existing Fogdog investors with board seats.
5.2 Warrant.
-------
5.2.1 Vesting
-------
. The warrant will be exercisable in full on the issue date.
5.2.2 Exercise Price
--------------
. The warrant will have an exercise price of $1.0294 per share of Series
C Preferred Stock.
5.2.3 Number of Shares of Series C Preferred Stock
--------------------------------------------
. The number of shares of Series C Preferred Stock issuable upon
exercise of the warrant shall be 6,171,524.
. The number of shares issuable upon exercise of the warrant, and the
exercise price per share, shall be adjusted to reflect stock
dividends, stock splits, reverse stock splits, etc. involving the
Series C Preferred Stock.
5.2.4 Rights and Preferences of Series C Preferred Stock
--------------------------------------------------
. The rights, preferences and privileges of the Series C Preferred Stock
issuable upon exercise of the warrant will be the same as the rights,
preferences and privileges of the Series C Preferred Stock that is
currently outstanding, including, without limitation, antidilution
rights and rights upon registration, liquidation, conversion,
redemption and preemption.
5.2.5 Automatic Conversion
--------------------
. The warrant to purchase Series C Preferred Stock, if unexercised at
the time of the IPO, will convert into a warrant to purchase Common
Stock upon the conversion of the Series C Preferred Stock into Common
Stock at the IPO.
<PAGE>
5.2.6 Net Exercise Right
------------------
. The warrant will contain a "net exercise" provision pursuant to which
NIKE USA can pay the exercise price with underlying shares and tack
its holding period for Rule 144 purposes.
6. Agreements between NIKE USA, Fogdog and Fogdog's Principal Investors
--------------------------------------------------------------------
Regarding Rights and Restrictions Applicable to NIKE USA's Equity Investment in
- -------------------------------------------------------------------------------
Fogdog.
- ------
6.1 Registration Rights Agreement. NIKE USA and Fogdog agree that the
-----------------------------
shares of Common Stock underlying the warrant are "Registrable Securities" under
the provisions of Fogdog's existing Registration Rights Agreement . In
addition, NIKE USA shall have the right, pursuant to an amendment to the
Registration Rights Agreement, to have one separate demand registration right
for its Fogdog securities which, if such right were to be exercised, would allow
NIKE USA to register and sell its Fogdog securities within the time frames of
its standoff agreement referred to above (i.e., [*], [*] and [*] at the end of
years one, two and three, respectively). NIKE USA will waive its right to such
demand registration right upon receipt of an opinion of counsel, in a form
reasonably acceptable to NIKE USA, concluding that NIKE USA would be able to
sell within the time frames of its standoff agreement in compliance with Rule
144 under the Securities Act of 1933, as amended.
6.2 Shareholders Agreement. Fogdog and its investors agree to enter into a
----------------------
Shareholders Agreement with NIKE USA containing at least the following terms and
conditions:
6.2.1 Co-Sale Obligation. If more than [*]
------------------
of Fogdog (excluding NIKE USA) agree to sell Fogdog or at least a majority of
its stock or assets to a third party, NIKE USA or any transferee of NIKE USA's
stock will agree to sell its shares in such sale.
6.2.2 Voting Agreement. As long as NIKE USA holds its warrant to
----------------
purchase shares of Series C Preferred Stock, the Series C Preferred Stock, or
all of the underlying shares of Fogdog Common Stock, NIKE USA will be entitled
to a seat on the Board of Directors of Fogdog or, at NIKE's election, to have an
observation right for one individual to have all of the rights and privileges of
a board member, except the right to vote. The identity of such board or
observer designee shall be at NIKE USA's discretion. This right will expire
upon Fogdog's IPO.
7. Miscellaneous Provisions.
-------------------------
7.1 Definition of "affiliate." The term "affiliate, " as used in this
------------------------
letter, means any entity controlling, controlled by, or under common control
with a named entity, where "control" means the power to vote, or direct the
voting of, more than 50 percent of
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
the voting interests in the entity. Fogdog acknowledges and agrees that nothing
in this Term Sheet or the definitive agreements will give Fogdog a right to sell
products manufactured by NIKE USA's affiliates Cole Haan and NIKE IHM, Inc.
7.2 Choice of Law. This Term Sheet and the definitive agreements
-------------
reflecting the agreements in Sections 1-4 shall be governed by and construed in
accordance with the laws of the state of Oregon, without regard to the choice of
law principles applied in the courts of such state. The agreements reflected in
Sections 5 and 6 shall be governed by and construed in accordance with the laws
of the state of California, without regard to the choice of law principles
applied in the courts of such state.
7.3 Rules of Construction. The parties agree that this Term Sheet is the
---------------------
product of negotiation and that no party will be deemed to be the drafter
thereof. In this Term Sheet, unless the context otherwise requires: headings are
inserted for convenience only and will be ignored in construing any matter;
references to the singular include the plural and vice versa; references to
"persons" include corporations, firms and any other entity; reference to a
section, clause or schedule is a reference to such in this Term Sheet unless
otherwise stated;
7.4 Amendment; Waiver. No term of this Term Sheet shall be amended,
------------------
supplemented, waived or modified except in a written document signed by each of
the parties. No delay or omission in the exercise of any right or remedy shall
be deemed a waiver of any right or remedy. No waiver shall constitute a waiver
of any other provision, breach, right or remedy, nor shall any waiver constitute
a continuing waiver.
7.5 Severability. Should any part of this Term Sheet for any reason be
-------------
declared by any court of competent jurisdiction to be invalid, such decision
shall not effect the validity of any remaining portion, which remaining portion
shall continue in full force and effect as if this Term Sheet had been executed
with the invalid portion hereof eliminated, it being the intention of the
parties that they would have executed the remaining portion of this Term Sheet
without including any such part, parts or portions which may for any reason be
hereafter declared invalid.
7.6 Successors and Assigns. This Term Sheet shall be binding upon and
-----------------------
inure to the benefit of the parties and their respective permitted successors
and assigns.
7.7 Entire Agreement. This Term Sheet constitutes the entire agreement
----------------
between the parties with respect to the subject matter of this Term Sheet and
supersedes all prior or contemporaneous agreements, promises or representations,
written or oral. No party is relying upon any representations or promises other
than those set forth herein.
7.8 Execution by Counterpart. This Term Sheet may be executed by
------------------------
facsimile and in one or more counterparts, each of which shall be deemed an
original and all of which shall constitute one and the same instrument.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 28, 1999 relating to the financial statements of Fogdog,
Inc., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
November 17, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated September 8, 1999 relating to the financial statements of Sports
Universe, Inc., which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
San Jose, California
November 17, 1999
